The January Cattle on Feed report pegged January 1 feedlot inventories at 11.2 million head, down 5.6 percent from last year.  December placements were down about 0.5 percent from year earlier levels.  This makes the seventh consecutive month of declining feedlot placements.  Marketings in December were down 1.7 percent from year ago levels.  December had one less business day compared to December 2011. 

This report was a bit of a surprise in most all respects.  Placements were lower than expected; marketings were higher than expected and, as a result, the on-feed inventory was lower than expected.  Digging a little deeper into the report, there are several insights into the unusual dynamics that characterize the cattle industry at this time.  The first is that it is not surprising that the industry “misread” the placements number coming into the report.  Placements in most of the major cattle feeding were larger, much as anticipated.  Among the largest cattle feeding states, only Colorado was down while larger placements were posted in Texas, Kansas, Nebraska, Iowa and Oklahoma.  In fact, in those five states, placements were 104 percent of last year, exactly in line with the pre-report estimates.  It was reduced placements in Colorado, along with Washington, California, Idaho and South Dakota that accounted for the decreased placements. 

This suggests that, not surprisingly, the squeeze in the feedlot sector is more pronounced around the fringes where feedlots are often geographically disadvantaged with respect to feeder and feed supplies.  Additionally, the lack of winter pasture and other drought impacts in the center of the country no doubt contributed to a short run increase in regional feeder supplies as expected.  The situation for small feedlots, those not counted in the monthly survey of feedlots over one thousand head capacity, is particularly important.  It is also hard to measure since estimates of all feedlots are only included in the semi-annual cattle inventory reports.  In the 15 years prior to 2012, the January monthly reported on-feed total represented an average of 81.4 of the January inventory in all feedlots.  The highest percent during the period was 82.6 percent.  In January, 2012, the percent jumped to 84.0 percent suggesting more fallout among small feedlots.  The upcoming estimates of all feedlot inventories for January 2013 in Cattle report later this week will be among many factors of particular interest in the report.

Another factor of interest in the latest COF report is the weight breakdown of placements.  The reduction in December placements was almost entirely due to reduced placements of cattle less than 600 pounds.  This category of placements was down 10 percent year over year.  Total feedlot placements have decreased 1.34 million head in the past seven months.  Reduced placements of the less than 600 pound category accounted for 61 percent of the decrease.  This no doubt partially reflects that fact that the economics of cattle feeding favors heavier placement weights and thus reflects more feedlot demand for bigger feeders.  However, it more likely reflects the overall shortage of cattle, which means that the challenge of maintaining feedlot inventories will increasingly acute in the coming months as heavier feeders move through the feedlots faster.