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CME: Feedlot Marketing Rates Faster than Last Year

13 June 2016

US - The US cattle feeding sector is not following the same path as last year, which set the stage for the cattle price collapse during the last few months of 2015.

Both cattle feeders and beef packers are in significantly different economic environments than in 2015.

The results are fed animals being marketed at a faster rate than a year ago. Confirmations of the increased feedlot marketing rate have been year-over-year declines in steer dressed weights and increased steer slaughter levels.

Of course, a significant market similarity this year and last year is that US beef supply is increasing at a rate that pressures prices.

Cattle feeders have been faced with different incentives and signals than a year ago. First, the economic incentive of very high feeder animal compared to the fed animal price, that led to delayed marketing of slaughter cattle, is not in place this year.

Second, the general trend in fed animal prices has been lower, so this year they see little incentive to hold onto slaughter ready animals in hopes of higher prices.

Besides feedlots, beef packers have so far also been in a different situation than in the first several months of 2015. Packers have been in a much stronger financial position than a year ago (i.e. improved and strongly positive margins), so they have often pulled animals into plants where last year they were often passive buyers of cattle.

For the four most recent weeks of USDA data, Federally Inspected (FI) steer dressed weight was below a year ago. The last time four consecutive weeks of year-over-year declines occurred was during June 2014.

Over the last 20 years, steer dressed weight increased an average of about 6 pounds every year.

Cattle dressed weights surged last year and were making headlines, largely due to delayed marketing’s.

For the week ending May 30, 2015, average FI steer dressed weight was 20 pounds heavier than 2014’s. The latest data from USDA (week ending May 28th) showed average steer FI dressed weight down 3 pounds for the week and 5 pounds below 2015’s.

That decline is rather modest, but when viewed along with steer slaughter levels this year, how different this year is compared to last becomes more apparent.

For the week ending May 28th FI steer slaughter was 9 per cent above a year ago. Further so far in 2016, weekly steer slaughter has been above 2015’s every week.

Year-to-date, weekly steer FI steer slaughter has averaged 7 per cent above 2015’s. Those increases are much larger than the growth in the supporting feeder steer supply outside feedlots.

The available supply of steers is working through feedlots at a much quicker pace than last year.

As the second half of 2015 unfolded, the cattle market began ailing and eventually went into intensive care.

In the fourth quarter of 2015, the 5-market average fed steer price was $127.72 per cwt, falling 23 per cent from 2014’s.

If the cattle business stays on the current path in terms of feedlot marketing rates, the Livestock Marketing Information Center currently forecasts slaughter steer prices in the October-December quarter will average below 2015’s, but slipping only 1 per cent to 4 per cent year-over-year.

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