The United States Department of Agriculture’s National Agricultural Statistics Service (USDA, NASS) released their monthly Cattle on Feed report Friday afternoon (July 25). The report revealed that 10.127 million head of cattle were in U.S. feedlots with a capacity of 1,000 head or larger on July 1, 2014. Placements into feedlots during the month of June totaled 1.455 million head while marketings totaled 1.847 million head.
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Placements totaled 1.455 million head, a decrease of 6.2% from June 2013 and a 8.2% decrease from the five-year average from 2009 to 2013. The average of analysts’ expectations called for a decrease of 4.4% from the June 2013 number and the range of expectations ran from a decrease of 8.1% to an increase of 3.5% (a rather wide 11.6% range!). So, for the first half of the year only January and February saw an increase in year-over-year placements, while all but January have had equal or below placements compared to the five-year average. Despite the market’s loud request for cattle (record level feeder calf prices) cattle did not show up and were lower than expected. This is a strong signal that the cattle supply has slowed to a mere trickle.
Only Iowa, Minnesota, Nebraska, and South Dakota experienced an increase in cattle placements last month. In Nebraska, where data are provided for placements by different weight groups, placements were steady or higher for all weight classes. Across the nation placements for cattle weighing 700 pounds or less were higher (up 19%, 40%, 15% and 19% respectively in Kansas, Nebraska, Texas, and collectively in the US). This is no surprise for two reasons. First, and obviously, the lower feed prices encouraged lightweight placements, but also heavy weight cattle were most likely very scarce as a result of the early year push into feedlots.
Cattle marketed in June totaled 1.847 million head, down 1.8% versus last year and down 6.9% compared to the average from 2009 to 2013. Pre-report expectations called for marketings to come in at a 1.9% drop, so the reported value was very much in-line with the average of expectations. This continues the trend of record low marketings being set in 2014. The current value is the smallest June marketings on record eclipsing the previous record set last year (1.88 million head), which eclipsed the previous record set the year earlier in 2012 (1.965 million head).
As a result, total inventories on July 1 were 10.127 million head, down 2.4% from one year ago and down 1.4% from the five-year average. Pre-report expectations called for a decline of 1.8% and fairly tight range from -2.8% to 0.8%, where the reported 2.4% decline is close to the low end of the range.
The July report also provides a breakdown of cattle on feed by gender. Steers on feed July 1 totaled 6.464 million head, a drop of 1.1% versus July 1, 2013. Heifers on feed totaled 3.603 million head, down 4.6% from last year. Finally, although small in overall quantity, the number of cows and bulls on feed totaled 60,000 head, down 2,000 from last year or a 3.2% drop. The drop in heifers compared to steers gives the impression of an effort to build the herd. This is similar to last quarter’s report where heifers on feed April 1, 2014 were 5.9% below the same period in 2013. So, it is possible that more heifers are being held off of feed with the intent of bringing them into the breeding herd.
The smaller than expected placements, which pulled the on feed number lower than anticipated, will provide a general sense of support to the market. However, the support will be segmented. Moving forward expect more cattle to be marketed in the coming month or two. The large volume of placements in January and February will soon be market ready (a few most likely have been sold). This will add a minimal amount of pressure in the near term although most of this has already been “priced into” the market (in other words, the marker has already taken this information into account). Also, the large volume of lightweight placements will surely pressure live cattle prices six to eight months out. On the other hand, the heavy pace of lightweight placements means fewer heavy placements will be available in the coming months which will provide support for feeder cattle prices. Longer-term, expect the red hot market to slow and then steady out as some level of herd rebuilding appears to be taking place.
A break down on the numbers can be found at this link: http://goo.gl/1M4YXv