In the cattle markets: Inventory jumps 5.6%

Last Friday, USDA released its monthly cattle on feed report, estimating the February 1, 2011 on feed number at 11.578 million head.  At a 5.6% increase over the February 1, 2010 on feed inventory, that marks the ninth consecutive month of higher year-over-year on feed numbers.  This increase was slightly more than expected by analysts before the report’s release.  The increase in cattle on feed numbers has been driven by more placements in recent months.  Placements in 2010 averaged 5.5% higher than in 2009 and fourth quarter 2010 placements were 7.4% higher than the same quarter in 2009.  These higher placements during the last several months of 2010 were somewhat usual given the rapidly increasing corn price during that time period, but increases in fed cattle prices offset the higher cost of gain and still offered modest returns.

Though projected returns were closer to breakeven at best for most cattle feeders last month, net placements of cattle on feed in January were 1.752 million head, 5.1% higher than January 2010 and about 28,000 head more than the average expectation going into the report.  However, USDA’s placement figure was well within the range of expectations – primarily because the range was notably quite wide, ranging from a two percent decrease to a nine percent increase.  The increase in January placements was lead by higher placements of light-weight feeder calves.  Placements weighing less than 600 lbs and 600-699 lbs were up 17.7% and 6.7%, respectively, in January 2011 compared to last year.  Placements of feeder cattle weighing more than 700 lbs were down about 2.5% in January.  Thus, the average placement weight of feeder cattle in January was down nearly ten pounds since last year.  Generally, the last several months have seen a decrease in placement weights as feedyards placed cattle earlier in anticipation of even tighter supplies of feeder cattle to come later in 2011. 

As expected, January marketings were about 1.8 million head, steady with last year.  Marketings as a percentage of the cattle on feed inventory, at 15.4%, posted its largest year-over-year decline in the past year, indicating that feedyard supplies are increasing relative to marketings.  While cattle feedyards are still relatively current, the extremely current conditions that prevailed last summer have likely passed, and feeders may need to be more cautious about holding cattle over to subsequent weeks’ showlists.  Current high prices, however, have incentivized feedyards to keep marketing cattle.  Still, steer carcass weights are running about ten pounds heavier than a year ago.  Further, as replacement supplies of feeder cattle grow increasingly tight later this year, feedyards will be more encouraged to leave cattle on feed longer.

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