The latest USDA Cattle on Feed report is one more indication that the drought of 2005/2006 has been unusual in several different respects. The buildup of feedlot inventories early in the year was the result of drought last winter and lack of winter forage. This led to a counterseasonal second quarter crash in fed prices followed by a counterseasonal summer rally as the industry worked through the short term glut of cattle.
By July, dry summer conditions were once again causing early marketings of feeder cattle and this pattern continued in August. August placements were 15 percent higher than one year ago. This unexpectedly strong placement figure pushed feedlot inventories to 110 percent of last year’s level on September 1. August marketings were 102 percent of the previous year but not enough to offset the sharply higher placements.
Fed cattle prices rallied to a much higher level in August than many analysts (myself included) had expected. Typically, we expect a fourth quarter rally for fed cattle prices from seasonal summer lows. This year, the question for the fourth quarter is whether the fed cattle market can maintain the current third quarter rally in the face of this most recent buildup of feedlot numbers.
The final irony is that drought usually has the most noticeable effects on cull cow markets, followed by feeder cattle markets with generally little direct impact on fed cattle markets. This year, cull cow and feeder cattle markets have held up remarkably well despite additional drought-induced marketings of these animals. Both feeder cattle and cull cows probably face less seasonal price pressure this fall simply because so many of the calves and cows have already been marketed, at least here in the southern plains.
Source: Dr. Derrell S. Peel, OklahomaStateUniversity