As discussed in last week’s Cattle & Corn Comments, March placements were 6% higher than a year ago, surpassing most analysts’ expectations. However, most of the increase in placements was in Texas and Kansas while placements in the Northern Plains fell sharply, particularly in South Dakota. This week, we’ll further investigate this geographic divergence in placements.
Prior to the corn price spike in 2007, Texas, Oklahoma, and Kansas typically placed about 52-53% of all U.S. placements from October through June (months which would include placement of the majority of the annual fall calf crop). South Dakota, Iowa, and Nebraska accounted for 24-25% of placements before 2007. After the initial corn price spike in 2007 and rapid adoption of feeding ethanol coproduct feeds, placements in the Southern Plains states fell to 50-51% while the Northern Plains states increased placements to 27-29% of all U.S. cattle placements. The Southern Plains drought in 2011 accelerated this trend towards more feeder cattle being placed in the Northern Plains and less in the south. In fact, from October 2011 through June 2012, Texas, Oklahoma, and Kansas placed less than 48% of all cattle placed on feed and Iowa, Nebraska, and South Dakota placed more than 31%. For last fall’s calf crop, the Southern Plains states have placed less than 46% of total placements while the Northern Plains states have increased its proportion of total placements to over 33%.
In Figure 1, the percentage of feeder cattle placed in the Northern Plains and Southern Plains states are shown in the red and blue lines, respectively (read units on left axis). These lines show the month-to-month and seasonal variation in the geographic placement pattern, unlike the October through June accumulated placement averages discussed in the previous paragraph. In March 2013, Texas, Oklahoma, and Kansas placed 54% of all cattle placed in 1,000+ head capacity feedyards, up from about 46% during January and February (see Figure 1). Meanwhile, placements in South Dakota, Nebraska, and Iowa dropped from about 32% to about 26%.
Figure 1. Northern vs. Southern Plains: Cattle placements as % of total fed cattle price differential, corn price differential.
Data Source: USDA-NASS & USDA-AMS
So, why did the geographic placement pattern change so dramatically in March? A couple of factors likely contributed to the change. First, the proportion of placements in the Southern Plains was lower than normal in March 2012 as a result of the lingering 2011 drought in the area. Thus, a comparison to March 2011 makes the increase to 54% of total placements this March look large. Still, though, the Southern Plains placed more of the national placements in March this year than is typical and the Northern Plains placed less than normal. Two market conditions could potentially be driving this: a) lower relative feed prices in the Southern Plains than in the Northern Plains, and b) higher slaughter cattle prices in the Southern Plains than in the Northern Plains.