Cattle on Feed Report Carries Bearish Tone for Monday's Markets

Cattle on Feed Report Carries Bearish Tone for Monday's Markets

Responses to USDA survey turn up larger November placements, larger on-feed inventory and lower marketings than traders expected.

Cattle and calves on feed for slaughter market for feedlots with capacity of 1,000 or more head totaled 11.328 million head on Dec. 1, 2012. That was just shy of 94% of the Dec. 1, 2011 value. It's about 70,000 cattle more than the average trade guess of 93.4% of the year-earlier value.

Placements in feedlots during November totaled 1.923 million, 94.4% of the November 2011 placements and about 3.2 percentage points more than the average trade guess of 91.2%. Net placements were 1.84 million head. During November, placements of cattle and calves weighing less than 600 pounds were 645,000, 600-699 pounds were 450,000, 700-799 pounds were 375,000 and 800 pounds and greater were 453,000.

SURPRISE? Responses to USDA survey turn up larger November placements, larger on-feed inventory and lower marketings than traders expected.

Feedlots marketed 1.761 million cattle in November, 99.3% of November 2011 value vs. the average trade guess of 100.2%.

The numbers are all on the bearish side of average trade guesses. And while futures will likely open lower Monday, no collapse is imminent. Here's one way to put the 70,000 head larger-than-expected Dec. 1 feedlot inventory in perspective. Friday's slaughter totaled 123,000. So the "unexpected" cattle in feed lots amount to about 60% of a typical day's slaughter.

Possible delay in higher prices

Feedlot placements have run below the year-earlier level for six consecutive months. The result is the feedlot inventory is getting farther and farther from the levels of both last year and the 2006-2010 average.

The first of those smaller placements vs. a year ago occurred in July. Those cattle will not, for the most part, be in the slaughter mix until January or later.

INVENTORY BUMP: Trade was surprised by today's Cattle on Feed Report.

The market has yet to see the impacts of these lower feedlot numbers in steer and heifer slaughter. However, those impacts are coming and so will higher prices.

"Normal" placement patterns not likely soon

Continued deeply negative feeding margins driven by historically high corn and hay prices and expensive replacement animals have caused cattle feeders to be reluctant to bring as many into the feed yards.

In recent months, pasture conditions in the southwest were better than a year ago and in much of the Midwest were improved from earlier in the summer, which had allowed ranchers and others to keep younger cattle on grass. Declining conditions in the southwest due to lack of moisture, however, could cause more cattle to enter feed yards in December, compared with a year ago.

Ranchers and farmers do not have enough winter wheat and other cool-season grass pastures to supply the animals with the feed they need, so some owners may have no choice but to move the animals into the feed yards early. That could cause a swing in placements for December to above year-ago levels. USDA will report those numbers in mid January.

TAGS: Crops
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