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CME: 2.2m Head of Cattle on Feed Placed in October

26 November 2018

US - USDA released the results of its latest surveys covering the number of cattle on feed in feedlots with +1000 head capacity as well as the supply red meat and poultry in cold storage, reports Steiner Consulting Group, DLR Division, Inc.

We thought both reports can be construed as positive for the market, showing smaller than expected inventories of cattle on feed and a notable reduction in the supply of beef in cold storage.

Below are some of the highlights:

Cattle on feed: Feedlot operators placed 2.248 million head of cattle on feed in October, 6.1 per cent less than a year ago and about 123k head less than the average of analyst expectations. There were solid arguments for expecting lower placements, the main one being the fact that feedlots placed a lot of cattle on feed in late summer, thus limiting the supply of feeder cattle available for placement in October.

During July and August feedlot placements were up a combined 269k head compared to the previous year. In the last two months placements have declined 244k head vs. year ago. The total supply of cattle on feed as of 1 November was estimated at 11.692 million head, 3.2 per cent higher than a year ago but notably lower than pre-report analyst estimates, which on average expected the inventory to be 4.3 per cent above year ago levels.

The inventory of cattle that have been on feed over 150 days is estimated at 2.085 million head, 18.5 per cent higher than a year ago while the inventory of +120day cattle is estimated at 3.825 million head, 10.1 per cent higher than last year.

Feedlots placed 145k fewer cattle in October 2018 than in October 2017. Most of the decline came in the 600-800 lb. category, fed cattle that would normally come to market in February and March. The report was released during trading hours Thursday and both February and April contracts rose following its release.

October feedlot marketings at 1.887 million head were 4.8 per cent higher than a year ago. Analysts on average were expecting marketings to increase by 4.2 per cent. There was one extra marketing day in October, which accounts for much of the increase in marketings vs. last year.

The marketing rate was predictably higher and at 16.6 per cent it was about the same as both in 2016 and 2017. The ratio of marketings vs. the +90day supply was 33 per cent compared to 34.1 per cent last year and 34.3 per cent five year average.

Cold Storage: The total inventory of beef, pork, chicken and turkey in cold storage at the end of October was 2.474 billion pounds, 1.4 per cent higher than a year ago and 10.4 per cent higher than the five year average.

Inventories declined 5.6 per cent compared to the previous month compared to an average drawdown of about 3.6 per cent in the last five years. High prices for some products, especially beef and pork, appear to have encouraged users to draw down inventories rather than continue to pay inflated prices in the spot market.

Meat protein supplies are expected to continue to expand and the drawdown in inventories should be supportive for prices in late 2018. The total inventory of boneless beef and bone-in beef cuts at the end of October was 515.4 million pounds, 1.6 per cent higher than a year ago and now 8.7 per cent higher than the five year average.

Some end users have bolstered inventories in preparation for year-end demand. Inventories increased 1.6 per cent in October vs. September compared to a 5-Yr average increase of 1.4 per cent. Inventories of bone-in cuts declined 1.8 per cent in October but still were 5.4 per cent higher than a year ago and 15.6 per cent higher than the five year average.

The total inventory of pork products in cold storage at the end of October was 570.6 million pounds, 3.2 per cent lower than the previous month. In the last five years the drawdown in pork inventories has been 4.5 per cent.

However, current pork inventories are 4.6 per cent lower than a year ago and 1.6 per cent lower than the five year average. Pork production has increased in the last few weeks but so far there has been good flow from the packing floor to the consumer. Lower inventories remain positive for Feb/Apr hog prices.


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