The latest Cattle on Feed report indicated that the September 1 feedlot inventory was 99 percent of the same time last year.  This represents only the second time in the last 28 months that feedlot inventories have dropped below year earlier levels on a month to month basis.  The only other time was the brief May 1 drop below 100 percent of year earlier levels.  This leads to two important questions:  how have feedlots been able to hold inventories at such high levels?; and will feedlots be able to maintain feedlot inventories in the coming months?

The September 1 feedlot inventory was 10.637 million head, down less than one percent from last year but still 4.5 percent above the same period in 2010.  In fact, except for the slight decrease from last year, this September 1 inventory is the largest since 2006.  This is remarkable given that the total calf crop has decreased every year since 2006. (The last annual increase in the calf crop was in 1995.) The 2012 calf crop is projected at 34.5 million head, down 6.8 percent from 2006 and down 2.3 percent from last year.  

Increased imports of feeder cattle from Mexico and Canada partially offset decreased U.S. calf production.  The increase in feeder cattle imports from 2010 through the year to date in 2012 equals roughly 40 percent of the decrease in calf crop over the period.  So far in 2012, imports of feeder cattle are up about 287,344 head, a 35 percent increase and nearly all due to increased imports from Mexico.  At the current pace, Mexico could contribute an additional 220,000 head by the end of the year.  However, Mexican cattle imports are expected to slow in the coming months.  It appears that much of the increase in Mexican cattle numbers since 2010 is the result of drought impacts.  In 2011, 34 percent of the year over year increase in Mexican cattle imports was heifers, representing 14.7 percent of total cattle imports and the largest imported heifer total going at least back to 2001.

For the January to July period in 2012, the number of imported heifers was over 268,000 head, more than in all of 2011, and representing 27 percent of the year to date import total compared to last year.  The increase in heifers represents 67 percent of the year over year increase in imports and suggests herd liquidation in Mexico. Imports of cattle originating in several drought-stricken Mexican states are up sharply this year.  The other 33 percent of increased Mexican cattle imports in 2012 is steers less than 200 pounds.  Nearly 84,000 head of these peewee steers have already been imported in 2012 compared to a scant 232 head for the entire year in 2011. These ultra-lightweight steers would have been imported over the next several months but are already part of the increased total so far this year.  There has been no increase in 2012 of imports of the typical Mexican feeder steers over 200 pounds.  Although changes in the health status of Chihuahua, the largest source of Mexican cattle imports, has no doubt temporarily limited imports from that state, the overall picture is that Mexican cattle imports have been augmented by drought impacts in the short run and will be followed by sharply reduced imports on the  back side of the drought. 

In addition to imports, other factors such as replacement heifers entering the beef cow herd and reduced calf slaughter have had limited impacts on feeder cattle availability but it is placement patterns that explain most of feedlots’ abilities to maintain inventory with declining numbers in recent years.  For the year 2011, total feedlot placements were up 1.8 percent.  Within that, all placement weight categories were down except for a 20 percent increase in placements of cattle weighing less than 600 pounds.  This was partly due to the drought in 2011.  The situation is quite different in 2012. Total placements for the January to August period are down 3.9 percent compared to the same period last year.  Moreover, placements of cattle less than 600 pounds are down 8.8 percent and placements of cattle weighing between 600 and 700 pounds are down 10 percent compared to the same period last year.  In fact, it is only an increase of 6.8 percent in placements of cattle over 800 pounds that limits the total decrease to less than 4 percent. 

So, will feedlots be able to maintain inventories in the coming months?  The answer is no.  Feedlots have not placed the large numbers of lightweight cattle that will stay on feed for many months like they did last year.  While lightweight placements will increase seasonally the next couple of months, the weight distribution in feedlots suggests that feedlot inventories will pull below year earlier levels and stay below for many months.  Additionally, feeder cattle imports will drop, if not immediately, certainly in the next few months, contributing to the inability of feedlot to maintain feedlot inventories.  Finally, in the absence of drought in 2013, increased heifer retention combined with a still smaller calf crop will further reduce feeder supplies.  The short supply of feeder cattle, masked by the impacts of two years of drought, is finally catching up with us.

Source: Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist