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CME: Lower Fed Cattle Numbers for Foreseeable Future

20 December 2013

US - Analysts expect Friday’s "Cattle on Feed" report from USDA to show slightly higher placements than one year ago but another month of lower feedlot inventories. That according to the monthly survey of analysts released by Urner Barry on Tuesday, write Steve Meyer and Len Steiner.

Note that Urner Barry, best known as the publisher of The Yellow Sheet price report, is the latest entry into the pre-report survey business for livestock. Dow Jones and Reuters also do pre-report surveys for the Cattle on Feed report.

The three efforts have, to date, involved a great deal of overlap among respondents and, to our knowledge, all of the groups use the same “Olympic” averaging method of throwing out the high and low estimate and averaging the remaining responses. Urner Barry’s sample for this survey covered eleven analysts.

That is a pretty normal response number for any of the three surveying companies. The Daily Livestock Report is not affiliated with any of the groups and will likely use various ones from time to time given the similarity of the analysts they survey and their computation methods. We view them, at least for now, as interchangeable.

Survey results suggest that the trade expects more of the same from this month’s report. The average estimate os 95.4 per cent of one year ago implies that 10.826 million head of cattle were in feedlots with capacities of 1000 head and more (the only ones surveyed on a monthly basis by USDA) on 1 December.

The range of year-on-year percentage estimates (94.4 per cent to 96.1 per cent) would put the range for feedlot inventories at 10.713 to 10.905 million head. The range is demonstrated by the green box in the chart below. A 1.7 per cent range in the survey responses is a relatively small, indicating pretty broad agreement on this number.

Should it be accurate, December would mark the 16th straight month of lower feedlot inventories on a year-on-year basis. It would also be the lowest 1 December feedlot inventory since 1996. These lower inventory figures leave us singing the same song we have been singing for the past year: Lower fed cattle numbers for the foreseeable future.

The 4.6 per cent year-on-year reduction in feedlot inventories implied by this survey is the smallest year-on-year decline of the past 5 months. The average year-on-year decline over that period has been 6.2 per cent. Fed cattle slaughter could easily be that much below year-ago levels over the next five to six months.

There is, as is usual, considerably less agreement among analysts about placements (ie. the number of cattle entering) 1000-head and over feedlots in November. The average of the estimates indicates that placements will be about the same size as last year at 1.951 million head. That figure is also just fractionally lower than the 1.96 million head that have been, on average, placed in November from 2008 through 2012.

While feed costs are much more favorable thus encouraging cattle to move to into yards, so are pasture conditions in much of the country. That fact counterbalances the lower feed costs to a great degree by offering more opportunity — especially relative to last year — for lower- cost grass gains.

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