What’s Ahead For The Fed Cattle Market?
11/27/2009 08:22PM
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On November 1, U.S. feedlot inventories were 11.134 million head, up almost 1.5 percent from last year. Many in the industry have been nervous over the fact that placements have exceeded year earlier levels for the last four months. Indeed, from July through October, total feedlot placements were up 402,000 head from the same period last year. This raises questions about how much pressure this will put on fed cattle prices in the coming months.
Of course, the biggest factor limiting fed cattle prices this year has been persistently weak beef demand and that is the bigger question for the remainder of this year and into 2010: will beef demand begin to improve, will it hold steady or could it weaken further? There is no doubt that any weakening of demand in the face of even a slight increase in supplies will pressure markets. Improving demand could make these supply concerns a moot point but it seems like a long shot for significant demand improvement to occur very quickly. Assuming steady beef demand, the question comes back to just how much additional pressure does the increase in feedlot inventories suggest for prices..and when?
The answer depends on where and when the increase in cattle numbers occurs. Geographically, the increase in feedlot inventories is more pronounced in the Northern Plains and the Midwest compared to the Southern Plains. Nebraska and Iowa together have feedlot inventories over 5 percent larger than last year while Kansas, Texas and Oklahoma are up less than 3.5 percent. (Decreased feedlot inventories outside the central part of the country, especially in California, Arizona and Washington account for the fact that the U.S. total is up only 1.5 percent.) The Northern Plains has struggled more with fed cattle marketings all this fall compared to the Southern Plains and it appears that will continue in the coming months. In fact, Texas has the smallest increase in feedlot placements the last four months and the current Texas total inventory is up less than one percent at this time. One positive factor moving forward is that the Northern Plains has cleaned up some heavyweight cattle and weights have decreased recently.
The distribution and weight of the increased placements over time will have a lot to do with market pressure. The pattern of placements by weight since July has been quite variable and generally suggests that the four month increase in placements will be marketed over the five month period beginning in December and extending into April. Marketing an additional 400+ thousand head over this period does not imply a particularly burdensome increase in marketings nor does the timing suggest any significant bunching of cattle during that period. Clearly, the marginal increase in supply pressure will be important relative to the all important question of demand over the period. Winter weather may play an important role as well and has the potential to change the timing and either create bunches or spread out cattle marketing, again depending on when and where it occurs. Over all, severe winter weather is most likely to reduce cattle performance thereby reducing some of the supply pressure.
The fed cattle market faces continuing challenges of limited demand sharpened by a modest increase in relative supply pressure as we finish out 2009 and in the first quarter of 2010. Feedlot placements will likely pull back for the remainder of the year as most of the long yearlings have been marketed and lighter weight cattle move to winter wheat. Part of the increased placements recently is due to current, short run market factors and part of it is due to longer run continuing trend of shifting the feedlot industry back to a more seasonally pronounced yearling based feeding industry.
Source: Derrell S. Peel, OSU Extension Livestock Marketing Specialist