Is last week’s FI cattle slaughter increase relative to last year an indicator that we the significant shortfall in cattle numbers may be ending? In spite of the fact that last week’s total of 643,000 head was only 1.1% lower than one year ago —the closest we have seen to year-ago levels since July 23 — we don’t think so. Let’s consider what was driving last week’s numbers and what still may be in store:
- Last week’s smaller year-on-year decline had more to do with declines in slaughter levels in November 2011 than it did a surge in slaughter this year. As can be seen at right, total cattle slaughter figures have been steadily increasing since October 1 but the pattern of those increases is pretty normal when compared to the 5-year average’s pattern. On the other hand, weekly slaughter runs were decreasing last year at a faster-than-normal seasonal pace, bringing the two lines closer together.
- Slaughter levels for both steers/heifers and cows/bulls are contributing to the gain relative to last year. The charts on page 2 show the 6-day running total of daily slaughter estimates for the two classes of cattle. This measure approximates the weekly slaughter data since it always includes five weekdays and one Saturday but is available each day so that a near real-time figure can be computed. After trailing year-ago levels significantly during October, the steer and heifer total has roughly matched last year’s level thus far in November. Cow and bull slaughter still lags year-ago levels but the degree of that shortfall is smaller than it has been at any time since mid-August with the exception of a period in mid-October when cow and bull slaughter was very short in 2011. An examination of the data show very low slaughter totals for Friday and Saturday, October 14 and 15 last year.
- Will the gains continue? It is quite possible. While we all have the 10, 11 and 19% year-on-year reductions in feedlot placements during July, August and September, respectively, clear in our minds, we may forget that such reductions were not the case in May. Placements that month were 15.1% LARGER than one year earlier and those 274,000 more cattle should be finding their way to slaughter plants about now. We expect those cattle to push steer and heifer slaughter totals very close to year-ago levels — and perhaps above them just a bit — for the next 4-6 weeks. But then comes the reckoning. July placements were virtually even with last year, suggesting that December and early January slaughter will be slightly below 2011-12 levels. The lower feedlot placements will then be coming to harvest, driving slaughter totals sharply lower as we get into 2013.
- Why would we see slaughter levels “close to” last year on higher May placements and “slightly below” last year on virtually equal June placements? We think the Cattle on Feed report’s sample changes were still having an impact on year-on-year placement comparisons in May and June. Recall that the number of lots with inventories of 1000 head and more increased and added roughly 2% to the COF numbers. There probably were not more cattle in those lots than there was one year earlier, just more of those lots were being surveyed and counted. Thus, inventories in the surveyed lots increased relative to total inventories and, eventually, relative to steer and heifer slaughter. Our impression is that the COF-surveyed lots are now roughly the same as one year ago, meaning that year-on-year comparisons for lots included in the monthly Cattle on Feed reports should be the same as for all lots and, ultimately, steer and heifer supplies. But that means the large year-on-year reductions in placements the past three months will eventually show up in slaughter totals in the January through April period.