Some fed cattle traded at $170/cwt. last week, surpassing the summer high and setting a new record; at least for now.  Feedlots are facing higher breakevens in coming months but stronger fed cattle prices is slowing the erosion of feedlot margins for the time being. Boxed beef prices dropped at the end of last week after Choice boxed beef rallied to $251/cwt. early in the week. Fed prices have strengthened relatively more than boxed beef prices and continue to keep packer margins in the red. 

The latest Cattle on Feed report was well anticipated and should not cause much market reaction but does contain some interesting information.  The October Cattle on Feed report pegs feedlot inventories on October 1 at 10.06 million head, down fractionally from last year.  This represents the 26th consecutive month of year over year decreases dating back to September, 2012.  September placements were 2.0 million head, up one percent from last year’s record small level for the month and were the second smallest September placements in the data series. September marketings were 1.68 million head, down less than one percent from last year. 

Feedlot inventories have closed very close to year ago levels in recent months despite tighter feeder cattle supplies.  The increase in September placements was mostly due to an eight percent year over year increase in cattle weighing over 800 pounds.  However, for most of the year, feedlots have placed lighter weight cattle.  While total year to date feedlot placements are down 1.2 percent, placements of cattle under 700 pounds are up 4.7 percent; while placements of cattle over 700 pounds is down 4.9 percent for the year.  Placing lighter weight cattle that stay on feed longer allows feedlots to maintain higher inventories with a smaller total supply.  Recently feedlots have also held cattle to heavier weights which additionally slows the rate of feedlot turnover.   Increased feeder cattle imports from Mexico and Canada have also helped offset declining U.S. feeder supplies.  Feeder cattle imports are up roughly 40 percent from Canada and 14 percent from Mexico for a combined year to date increase of just over 182,000 head more than last year, based on preliminary weekly import data.

Increased feeder heifer imports, especially the nearly 38, 000 head of additional heifers from Mexico so far this year offsets some U.S. heifer retention as indicated by the number of heifers on feed.  Nevertheless, on October 1, heifers on feed were down 3.1 percent from last year and were down 12.4 percent from the 2008-2012 average of heifers on feed for the fourth quarter of the year.  By contrast, steers on feed, October 1, 2014 were up 0.8 percent from last year but down 3.4 percent from the 2008-2012 average for October 1.  The market pull of current feeder prices in the U.S. is extraordinary, especially with regards to Mexico where increased cattle exports to the U.S. are occurring despite very tight cattle numbers and strong domestic demand for cattle in Mexico.  The increase in Mexican heifer exports to the U.S. is occurring despite sharply reduced cow numbers in Mexico and attempted herd rebuilding driven by improved forage conditions in much of the country.  Cattle and beef prices in the U.S. and Mexico follow each other closely but the rapid rise in U.S. prices in recent months has not yet been fully reflected in the Mexican market.  This provides an incentive for increased flow of cattle from Mexico to the U.S. until prices in Mexico are in balance with U.S. prices. The current rate of cattle exports from Mexico is likely not sustainable for many more months.

Finally, the Cattle on Feed report shows that regional cattle feeding conditions are quite variable.  Feedlot placements in the Midwest were sharply higher than in the Southern Plains.  For example, placements in Nebraska were 102 percent of last year while Texas placements were 95 percent of year ago levels.  Although Texas has been the largest cattle feeding state for many years, Nebraska had equal or higher on-feed totals for four months earlier this year and the same may happen again in coming months.  The October 1 Nebraska on-feed total was only 230,000 head less than the Texas total, much smaller than the historical difference at this time of year.  Some of this is due to drought-reduced regional availability of feeder cattle. However, current difficulties transporting grain out of the Midwest and Northern Plains and the resulting weak grain basis in the region is creating a significant feed cost advantage for Corn Belt feedlots relative to the Southern Plains.  This is contributing to what appears to be a longer term structural shift in cattle feeding back to the Midwest relative to the Southern Plains.