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CME: August Cattle on Feed Inventory Expected to Rise; Decline in Spring Pasture, Range Conditions

28 June 2017

US - As of 1 June, the total inventory of cattle on feed in feedlots with +1000 head capacity was estimated at 11.096 million head, almost 300,000 head (+2.7 per cent) larger than a year ago, reports Steiner Consulting Group, DLR Division, Inc.

This was the first time since January 2013 that the inventory has surpassed 11 million head and the last comparable 1 June inventory was in 2012. On feed supplies have increased recently as feedlots in the last three months (Mar, Apr & May) have increased placements by 600,000 head vs. the comparable period a year ago.

So while the front end supply still looks relatively current, available inventory should start to increase in August. The 120-day inventory on 1 June was down about 9 per cent compared to the previous year.

The marketing rate in May was 17.7 per cent, faster than the previous years and in line with the five year. Based on fed cattle slaughter so far in June, we think the marketing rate in June was near 18 per cent, surpassing both last year and the five year average. Robust marketings and the seasonal decline in placements in February have contributed to the tight front end supply.

While there has been a lot of talk about the surge in Mexico cattle imports recently, at this point it looks like larger domestic calf supplies rather than big imports are the main reason for the surge in placements.

During the 13 weeks in Mar, Apr and May, imports of feeder cattle from Mexico were 336,983 head, about 34,000 head more than the previous year. However, imports of feeder cattle from Canada during this period were down by a little over 50,000 so overall imports of feeder cattle in the last three months are down compared to the same period a year ago.

Marketings in July and August remain key although at this time it appears futures are trying to price in a possible slowdown in retail beef features and slower product movement. While this is possible, there are also a number of factors that should continue to support beef demand this summer.

Consumer income growth remains good, the unemployment rate is substantially lower and higher equity/housing markets have bolstered both household balance sheets and overall consumer confidence.

Retailers were quite adept at promoting beef this year, in part because lower prices last fall and early this year provided an opportunity to do so. Also, beef provides the opportunity to book higher dollar sales while holding the meat margin together.

Beef packer margins at this point remain excellent and this has encouraged them to maximize fed cattle slaughter. Total cattle slaughter last week was reported by USDA at 632,000 head, 4 per cent higher than the previous year.

One of the issues that some readers have brought up, and its quite valid, is that more recently the first USDA estimate of cattle slaughter has fallen well short of the actual. For those not following the cattle market as closely, USDA provides an estimate of daily slaughter based on numbers reported by larger plants.

In two weeks, USDA will issue the actual slaughter numbers (the same report that also includes cattle weights) which tabulates all the slaughter data reported by USDA inspectors from all plants.

For the week ending 10 June, fed cattle slaughter was 512,000 head, almost 12,000 head (2.4 per cent) higher than the initial estimate. Since March, the shortfall in first estimate reporting vs. actual has averaged 6,657 head/week.

Decline in pasture and range conditions for the US this spring

In their Daily Livestock report for 27 June, the Steiner Consulting Group has reported that on average, pasture and range conditions for the US this spring have declined slightly more than a typical year. Deteriorating conditions are most evident in the Dakotas and Montana.

An accelerated decline in conditions in the Dakotas started in the last week in May. The percentage of pastures rated very poor during that week increased by 5 per cent in both South and North Dakota.

Over the course of the following two weeks, percentages of pastures rated very poor increased by 12-15 per cent. Ratings stabilized for the third week of June, but in the last week, another sizable increase in very poor pastures was noted.

The story for Montana shows similar timing for the weeks of interest, but more moderate condition shifts. In fact, notable reductions in the amount of pasture rated very poor was encouraging for the latest week.

US pasture and range conditions still look good compared to longer term averages. Texas and Oklahoma pastures are similar to the very favorable ratings of a year ago. The Western Region (New Mexico, Utah, Idaho and west from there) conditions continue to get a boost from the drought-busting rains and elevated snow pack of the winter and early spring.

The percentage of pastures rated excellent in this region is the highest that has been seen since the mid-1990s. East of the Mississippi, pastures in the Southeast have improved steadily as the spring has progressed. Ratings for the latest week are the best since June 2013. Conditions in the Midwest are about the same as a year ago.

Northern Plains pasture conditions are having an impact on feeder cattle prices. Prices for 600 pound feeder steers at South Dakota auctions last week were down $9 per cwt. from a month earlier.

Similar feeder steers in Montana were priced $4 per cwt. lower than in mid-May. Weekly feeder cattle receipts at South Dakota auctions as reported by USDA-AMS (Agriculture Marketing Service) during the first week in June were down 12 per cent from a year earlier. The next three weeks have shown increases of 22, 102, and 146 per cent respectively.

Pasture conditions in Nebraska, one state south of South Dakota, are much more favorable. Whereas 53 per cent of South Dakota’s pastures are rated poor or very poor, only 8 per cent of Nebraska’s pastures fall into the poor or very poor category.

Prices for 600 pound feeder steers in Nebraska in the latest week were up $10 from mid-May. Moving a little further to the south, Oklahoma City 600 pound feeder steers prices moved up $3 per cwt during the last month.

Feeder cattle market receipts across the nation in June continue to run well above a year ago and conditions in the Dakotas and Montana are probably a factor. Auction receipts this month are up 10 per cent from last June. In May, auction receipts were up 16 per cent from the prior May.


Daily Livestock Report - Copyright © 2008 CME. All rights reserved.


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