Source: John D. Anderson, Deputy Chief Economist, American Farm Bureau Federation

Cattle on Feed reviewLast Friday, USDA released the monthly Cattle on Feed (COF) report, and the numbers clearly show the effect of this year’s drought.  As Jim Robb noted in last week’s ICM, August placements generally reflect the beginning of the fall run of seasonally above-average placements.  That effect this year has been substantially muted by the relatively large drought-induced placements in July.  In the ten years from 2001 through 2010, placements increased by almost 21% between July and August, on average.  The smallest July-to-August increase in that time period was 11% in 2001.  Last year with the Southern Plains drought forcing calves into feedlots earlier than normal, placements only increased by a little more than 5% between July and August.  This year, the July-to-August increase in placements was even smaller – just 4.2%.  USDA noted that this is the second smallest August placement figure since the current COF series was started in 1996.

The weight breakdown of placements this year was considerably different than last year.  In 2011, a large slug of lightweight calves was in the placement mix.  That was not the case this year.  Calves weighing less than 600 pounds made up about 24% of all August placements this year.  That compares to a bit under 23% on average over 2006 through 2010.  By contrast, in 2011, calves under 600 pounds constituted almost 32% of August placements.  Last year’s numbers likely reflected more early-weaned calves from Texas and Oklahoma than this year.  Also, last year there was in August virtually zero available forage in the Southern Plains or even most of the Southeast and little hope that any would be forthcoming, as conditions were deteriorating throughout the month.  This year was notably better over most of Texas and much of the Southeast so that the idea of finding a place on grass for lighter stock – immediately or at least within a few weeks time – did not seem completely hopeless.

The COF’s bullish news on placements was blunted by bearish news on marketings.  August marketings were considerably lower than expected – below even the most pessimistic pre-report forecasts.  Marketings were down 4.5% from a year ago.  Despite soaring feed costs, marketings in August did not look terribly aggressive.  This comports with data in last week’s Livestock Slaughter report, which showed an 18-pound increase in steer dressed weights for this August compared with a year ago.  Despite the slower pace of marketings, the total on-feed number was about in line with expectations: down just a touch year-over-year.  On balance then, the marketing figure may keep some pressure on front-month futures, but the overall story coming out of the COF is still one of further tightening of cattle and beef supplies.

Headline numbers from the COF are summarized below:

September Cattle on Feed Summary: Actual vs. Pre-Report Figures 

                                                           % of Previous       Pre-Report Estimates*

                                    1,000 head             Year             Average            Range

August Placements          2,002                  89.1                 92.7           88.2 – 102.4

August Marketings          1,960                  95.5                 98.5            97.3 – 98.9

September 1 On-Feed   10,637                  99.4                 99.9           98.6 – 101.6

*Source: Dow-Jones Newswires through the Livestock Marketing Information Center.  

The Markets

The fed cattle market basically held steady last week, with the bulk of sales in the $125 to $126 range.  Wholesale beef prices moved higher for the week, with the Choice cutout falling just a cent short of $195 on Thursday before falling back on Friday.  The pork cutout finally managed a modest gain this week, but pressure on wholesale pork prices from surging supplies will likely be a challenge to further beef gains in the short run.  Stocker and feeder calf prices were called steady to $3 higher is last week’s national summary from AMS.  Runs appeared to be down significantly, both week-on-week and year-on-year.  The corn market has basically stabilized after legging down a bit following the recent supply and demand estimates report.  This Friday, USDA will release the quarterly Grain Stocks report, giving some indication of how rationing among the various sectors was affected by record prices over the last quarter of the marketing year.

Cattle on Feed review