Source: John D. Anderson, Deputy Chief Economist, American Farm Bureau Federation
Last Friday, USDA released their monthly Cattle on Feed numbers. The headline numbers from the report are summarized in the table below along with pre-report estimates reported by Dow-Jones Newswire.
August Cattle on Feed (COF) Summary: Actual vs. Pre-Report Figures
The headline numbers in the report were all basically in line with pre-report expectations, although marketings were well toward the low end of those expectations. July placements were probably the most interesting feature of the report. This year’s widespread drought has surely pushed calves off of non-existent pasture and into feedlots, but July placements were down by 10% year-over-year – as anticipated in pre-report estimates. It is important to remember that last year was also an aberrant year due to the less-widespread but arguably more intense Southern Plains drought. July 2011 placements clocked in at over 2.1 million head, which USDA noted at the time was the highest July placement figure going back to the beginning of the current COF report configuration in 1996. This year’s 1.9 million head of July placements were actually 9% higher than the 2008-10 average and were, excepting last year, the highest July placement figure since 2006. In this context, then, a second straight year of drought-induced above-normal placements looks pretty clear.
Year-over-year comparisons of placements by weight are also skewed by last year’s abnormal experience. With calves being forced into feedlots by lack of grazing opportunities, one would expect a higher level of lighter weight placements; but placements of calves in the uner-600-pound category were down by almost 20% compared to last year. Here, again, the year-over-year comparison is not particularly insightful. Compared to the 2008-10 average for July placements, this year’s under-600-pound placements were up by almost 22%. Of course, placement decisions this year are being complicated by record-high feed costs. Those costs provide a strong incentive to keep calves in less intensive growing programs for as long as possible, minimized feed expenses for finishing to the greatest extent possible. On that point, it is worth noting that the only weight category showing an increase in placements (both year-over-year and compared to the 2008-10 average) was the over-800-category. In fact, over-800-pound placements this year were record large for July. Typically, heavier-weight placements equate to heavier finished cattle. To what extent that holds true with $8+ corn remains to be seen.
The fed cattle market eked out another $1 gain last week to extend a much-needed rally for the fourth week. The 5-Area weighted average price bottomed out at $112.90 in the third week of July before starting this recent rebound. Last week, prices broke back above the $120 mark. This rally has been supported by stronger wholesale beef prices. The Choice cutout value finished the week last week at $193.03 – over $8 higher than the prior Friday and over $16 higher than its late-July low of just under $177. Calf markets have felt some relief from the resurgence in wholesale beef and fed cattle prices. Feeder cattle prices continue to contend with the effects of high feed costs, but improving fed cattle prospects do relieve some of the pressure. Last week’s market reports called feeder prices generally firm to $5 higher. On lighter calves, eternal optimism regarding fall grazing prospects provided a bit larger boost. Stocker prices were generally $3 to $6 higher, with instance of as much as $10 higher noted on calves suitable for grazing.