The number of cattle sent to feedlots for fattening may have reached an all-time high last month as severe drought in the Southern U.S. Plains forced ranchers to move young animals off withered pastures.
During July, feedlot placements rose an estimated 17.5 percent from 1.754 million head in the same month in 2010, according to the Livestock Marketing Information Center. That would result in placements totaling 2.06 million, surpassing the current record for any July, at 1.997 million head, set in 2003, according to USDA data.
Record drought gripped Texas and other top cattle states much of the year, resulting in an upswing in feedlot placements, an indicator of beef supplies four to eight months in the future. July’s feedlot placements will be among the closely scrutinized numbers in the U.S. Department of Agriculture’s next monthly Cattle on Feed update, scheduled for Aug. 19.
“Huge, huge numbers of cattle have been moving down South off of pasture because of the drought,” said Troy Vetterkind, owner of Vetterkind Cattle Brokerage in Chicago. “Everybody’s just extremely short on feed.” For beef cattle, as pastures dried up, “you’ve got to move them into feedlots,” he said.
Vetterkind predicted a 12 percent increase in July placements, while Elaine Johnson of CattleHedging.com, LLC, forecast a rise of 14.7 percent.
The Plains drought is compounding problems for the cattle business, which is also being squeezed by soaring feed costs after corn prices doubled over the past year. That’s muted the benefit from cattle prices that remain near record highs set over the spring.
Feedlots lost an average of $168 per head on cattle sent to slaughter last month, according to Jim Robb, director of the Livestock Marketing Information Center. That’s worse than the average loss of $156 during June and is the largest monthly loss since feedlots were in the red by $225 an animal in January 2009. In July 2010, feedlots lost an average profit of $9 a head.
Rising feedlot placements likely will pressure prices for fattened cattle later this year as animal inventories increase, Vetterkind said. He expects placements will be at or above year-ago levels through October, then “drop off a rock… because all the cattle available to market will be on feed,” he said.
In trading Aug. 16, CME Group live cattle futures for December delivery fell 32.5 cents to the equivalent of $121.175 per hundred pounds. August futures settled unchanged at $117.90
December and February futures “probably are going to disappoint,” Vetterkind said. The market may fall to $115 by December, “and it could be lower,” he said.
Since the beginning of June, cattle averaged about $110.81 per hundredweight, up almost 20 percent from $92.60 during the 2010 summer, based on closest-to-expiration CME futures.
In another closely followed USDA number, the total number of cattle on feed as of Aug. 1 is forecast to be up 6 percent to 7.8 percent from 9.873 million head a year earlier, based on analysts’ estimates.
While feedlot supplies have increased in recent months, the U.S. cattle herd remains depleted by historical standards, with the overall inventory shrinking to a record low at the beginning of July, according to the USDA. That means consumers probably face even higher costs for steaks, burgers and other beef cuts at the grocery store, analysts say.
Retail beef and veal prices are expected to increase 7 percent to 8 percent this year and rise another 6 percent to 7 percent in 2012, according to a USDA forecast released last month. In 2010, retail beef prices rose 2.9 percent.