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CME: Heavier Cattle Weights Expected to Continue

21 March 2016

US - The March 1 Cattle on Feed report has been published by USDANASS, detailing marketings, placements, and on feed inventory for feedlots with a 1000 or more head capacity, write Steve Meyer and Len Steiner.

Expectations for this report were for higher year-over-year marketings and placements in February with the result of a March 1 on feed inventory very similar to slightly above year ago.

Starting with marketings, the extra Leap Year day in February added one more slaughter day to the calendar compared to February of 2015.

This extra day is the main contributor to average expectation of marketings up 4.6 per cent year-over-year. Using the average prereport marketing estimate, the daily marketing rate for this past February would come out equal to a year ago.

Looking at slaughter cattle imports from Canada for the month of February, we imported an additional 8,000 head compared to a year ago, and that is not a large enough number to significantly impact our year-over-year marketings comparison.

The key with these marketings in terms of industry dynamics will be continuation of a marketing rate at least even to, if not slightly above, year ago levels.

This helps ensure the feedlots are staying more current and will help avoid the situation we found ourselves in last year of frontloading extremely heavy cattle, as we start to place more feeders.

Placement estimates show a very wide range for February, with the general consensus of “up” compared to 2015 (90 per cent of analysts polled by Urner Barry expect placements to be above year ago).

While that general consensus is not very surprising given our increased supplies of feeder cattle available outside of feedlots and current market dynamics, the level of how high placements went compared to 2015 is being debated.

To review, in 2015 February placements were down 6.5 per cent compare to 2014’s. That is a large drop, and some of the decrease can be attributed to severe winter weather in 2015.

Turning to this year, the industry has larger feeder supplies available outside of feedlots, milder winter weather conditions in most of the US, somewhat improved cattle feeding margins (although still in the red during February), an extra slaughter day in February, and a stronger and more stable price environment compared to the second half of 2015.

All of these factors support an increase in feedlot placements and we believe there is much more potential on the upside for increased placements year-over-year, than for decreased placements.

One aspect to remember is February is seasonally a rather small placement month, so in the big picture if placements are up 2 per cent or 10 per cent it will not impact the cattle on feed inventory as much as it would in summer/fall months.

We do think the trend that February is likely to start, of increased placements year-over-year, is an important one for the industry and will stick around for a while as we continue to cyclically increase our cattle supplies.

This brings us to an expected cattle on feed inventory for March 1st of 99.0 per cent to 101.5 per cent of a year ago.

If we see marketing rates continue to return to “normal” or above 2015’s, we should expect to see the number of cattle on feed over 120 days drop as well, given there are no market shocks.

Additionally, while we will probably see more lighter weight animals be placed compared to last year, the trend of placing heavier cattle, and feeding them to heavier weights is likely to continue as long as economic forces allow.

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