The latest Cattle on Feed report released last Friday continued the trend of larger placements and a larger number of cattle on feed. Placements were 7.3% or about 123,000 head greater in February 2018 as compared to February 2017. Meanwhile, marketings were up only 1.6% above year-over-year. The report showed a total of about 11.7 million head of cattle on feed in feedlots with at least 1,000 head capacity. This is 8.8% above March 1, 2017 and is the largest total for any March 1st since 2006.
While placements were up yet again, the primary concern is the pace of slaughter. Slaughter rates the past three weeks have been about 2 percent lower than the same time last year as pointed out in the latest Daily Livestock Report. The chart above shows fed cattle marketings as a percentage of the number of cattle on feed. This percentage in February was below the five-year average. If lower slaughter rates continue, coupled with the known increases in the number of cattle on feed, concerns arise about a large number of market-ready cattle in the coming months.
Why does a potentially large number of market-ready cattle matter to producers with no stake in live cattle? A bottleneck at any level of the beef production chain is generally a bad thing for producers. Calves from cow-calf country ultimately end up in the feedlots – even if they trade hands a few times on the way. An efficient marketing pace ensures that market-ready cattle are moved out and space frees up for new placements to move in. A large supply of market-ready cattle all at once can lead to low live prices due to excess supplies and those cattle may stay in feedlots longer. This can have two primary negative effects on feeder cattle prices. First, more market-ready cattle waiting in feedlots can lead to less feedlot demand for placements. Second, lower live prices lead to lower breakeven prices that feedlots can pay for feeder cattle.