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CME: Cattle on Feed Survey Expected to Show Reduced Supply

21 January 2016

US - According to analysts polled by Urner Barry over the long holiday weekend, the January 1 supply of cattle on feed is expected to be down 1.2 per cent compared to the previous year, write Steve Meyer and Len Steiner.

USDA will release the results of its monthly survey of feedlots with +1000 head capacity on Friday (Jan 22) and, needless to say, market participants will pay close attention.

Futures have been extremely volatile in recent weeks, in part because of the influence of outside markets.

The feedlot survey will provide some indication about the supply outlook over the winter and spring months, helping anchor futures to fundamentals.

The on-feed inventory has an unusually wide range but, as you can see in the second chart, most analysts expect inventories to be at least 1 per cent under last year’s levels.

The decline is driven by a combination of higher marketings and lower placements in December. Normally analysts are quite close in their marketing estimates given that by now we have a fairly good idea of what steer/ heifer slaughter was in December.

And yet, the marketings range oddly is quite wide. According to our calculations, steer/heifer slaughter in December was about 1.6 per cent higher than a year ago, which fits well with the analyst average.

As is always the case, analyst estimates of December placements fall in wide range. On average, they expect placements to be around 5.1 per cent lower than a year ago.

It should be noted that placements in December 2014 were relatively low at 1.537 million head. In the previous four years December placements had averaged 1.677 million head.

Herd rebuilding, which has limited heifer placements, and a still historically small calf crop likely continued to limit feeder availability this past December. Furthermore, feedlots have had to contend with significant margin pressure, which has made them much more risk averse than in the past.

Forward fed cattle prices dropped steadily in December, with the April fed cattle contract wallowing in the mid to high 120s for a couple of weeks in mid December. Fed cattle recovered rapidly at the end of December but that may have had more of an impact on January placements.

December placements also were negatively impacted by a sharp decline in imports of feeder cattle from Mexico and Canada.

Imports of feeder cattle from Mexico during the four December weeks (Nov 30 - Dec 26) were 105,323 head, down 44,809 head (-29.8 per cent) compared to the same period a year ago.

Imports of Canadian feeder cattle were just 2,795 head, down 20,823 head (-88.2 per cent) compared to a year ago. Total feeder cattle imports in December were thus about 65,000 head lower than the previous year.

The decline in feeder cattle imports alone removes about 4.2 per cent points when comparing to December placements in 2014.

While the decline in inventories will certainly help feedlots gain some leverage in the next couple of months, it is important to recognise that feedlot supplies still remain front loaded.

The supply of cattle than have been on feed for more than 120 days is about 10 per cent higher than a year ago. However, if feedlots remain aggressive in their marketings feedlot inventories should get current in a hurry, just in time for the normal demand improvement in the spring.

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