Reaction neutral on Cattle on Feed report
BROOKINGS – Reaction to USDA’s June Cattle on Feed report is mostly neutral to slightly bearish says Darrell R. Mark, Ph.D., Adjunct Professor of Economics at South Dakota State University.
“Placements, marketings and the on feed inventory were fairly close to pre-report trade expectations,” he said.
Mark says that according to USDA’s survey of feedyards with at least 1,000 head capacities, there were 10.736 million head of cattle on feed in the U.S. on June 1.
“That is 3.1 percent below last year, and the tenth consecutive month of year-to-year reductions in the number of cattle on feed,” Mark said. “For the first half of 2013, cattle on feed has averaged 5.1 percent below last year, but is on pace with the five- and ten-year averages.”
USDA reported that feedyards marketed 1.948 million head of cattle during May, or about 3.4 percent less than in May 2012.
“That’s less than expected, as federally inspected steer and heifer slaughter during May 2013 was 2 percent below a year ago. However, marketing as a percentage of the on feed inventory remained about 18 percent this May, as it was in May 2012,” he said.
As has been the case for the last several months, Mark said the placements figure was the most anticipated number in the Cattle on Feed report.
“After the two previous months with higher-than-expected placements, expectations were for about a 4 percent decline in the number of cattle placed on feed during May,” Mark said. “USDA actually reported a 1.7 percent reduction in gross placements in May 2013 compared to a year ago.”
While the placements figure was well within the wide range of pre-release expectations, Mark said it is still somewhat surprising that cattle feeders placed this many cattle on feed. He adds that placements generally rise in May; however, this year’s May placements were about 8 percent higher than the five-year average for the month of May.
“Lower feeder cattle prices during May likely helped encourage placements,” he said. “However, projected margins on cattle feeding deteriorated throughout the month as corn prices increased and fed cattle prices generally traded sideways.”
Based on this, Mark says it appears that cattle feeders tried to insulate themselves as much as possible from higher corn prices by concentrating their placements towards heavy feeder cattle. During May, they placed 800,000 head of feeder cattle that weighed more than 800 pounds, which is nearly 20 percent more than in May 2012. Placements of 700-799 pound placements were up almost 5 percent, but placements of 600-699 pound feeder cattle were down 17 percent. Feedlots placed only 390,000 head of feeder cattle weighing less than 600 pounds.
“It is also possible that stable to downtrending prices for distillers grains during May provided some offset to higher corn prices during the month,” he said. “In fact, placements in South Dakota and Iowa were 11 percent and 10 percent higher than a year ago.”
Nebraska placements were steady with May 2012. These three states typically feed more distillers grains in cattle rations due to the presence of ethanol production in those states. Southern Plains feedlots placed fewer cattle on feed during May. Texas, Oklahoma, and Kansas placed 3 percent less cattle last month than a year ago.
“Given the tight cattle numbers and historically small calf crop last year, it continues to be somewhat puzzling that placements haven’t declined more thus far this year,” he said.
For the first five months of the year, Mark said placements were only 1.2 percent lower than the same time period in 2012. Most of that reduction was achieved from sharply lower placements in February. March and April saw higher placements relative to a year ago.
“It appears that there was a bit of a backlog of feeder cattle in late 2012 and early 2013 that were awaiting placement into feedyards, perhaps as a result of additional winter backgrounding by Midwest farmers with silage cut from last year’s drought-stricken corn crop,” he said. “Placements have also been higher than expected despite the sharp declines in feeder cattle imports from Mexico and, to a lesser extent, Canada.”
Mark says it appears like these sources of feeder cattle will remain below year-ago in the upcoming months.
“This, combined with expected tightness in domestic feeder cattle supplies, is expected to result in lower placements relative to a year ago in the upcoming months,” he said.
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