As of late July, packers continued to hold back on production, and their efforts appeared to finally be having an effect on wholesale beef prices. They certainly have had an effect on feedyard carryover.
The Texas Cattle Feeders Association reported that showlists of market-ready cattle available on July 25 in the TCFA market area totaled 123,900. That compared with 88,500 head at the end of June. The TCFA report also notes that cattle on feed numbers through the first half of this year ran 5 percent lower than last year, but federally inspected slaughter during the same period was down 6 percent. Feedyards typically become less current at this time of year, TCFA notes, with week-to-week carryover usually peaking around mid-August. Nevertheless, the growing backlog is a concern as prices remain under pressure. As of July 22, packers were losing close to $70 on every animal they slaughtered, according to the Sterling Beef Profit Tracker reported on Drovers.com.
Continued negative margins make packers reluctant to step up their purchases and beef production until they see some improvement in wholesale prices. We began to see some of that improvement in late July, with the Choice cutout during the week ending July 24 averaging about $4 higher than the previous week.
But even as backlogs of market-ready cattle stack up in feedyards, overall on-feed numbers continue to shrink. Feedyard inventories as of July 1 were down 5 percent from a year ago. June placements were 8 percent lower than those during June 2008, and placements were lower in every weight class. Feedyards marketed more cattle than they placed during June, with sales totaling just under 2 million head, a 1 percent increase over last June.
Excess capacity continues to challenge the cattle-feeding sector, as feedyards bid up feeder cattle and create unrealistic breakevens while trying to fill pens. Our partner organization CattleNetwork provides a monthly cattle on feed analysis that tracks feedyard occupancy rates, along with other key trends. Total pen space in the United States provides capacity for about 16.7 million head. With 9.75 million head on feed as of July 1, occupancy stood at 58.4 percent. Occupancy rates have dropped steadily since early spring (see chart).
One bright spot for cattle feeders is that corn prices continue to decline. By late July, Omaha corn prices had dropped below $3 per bushel, compared with prices well over $5 one year earlier. Lower production costs have helped cattle feeders regain some profitability, with feeding margins inching into the black in late July. That trend could encourage feedyards to step up placements, especially as they look at significant premiums in the October and December futures contracts.
USDA’s July Cattle Inventory report repeated one number — 1 percent — throughout: all cattle and calves, as of July 1, down 1 percent, beef cows down 1 percent, cows that have calved down 1 percent, calf crop down 1 percent and heifers down 1 percent. One category that departed from the trend is beef replacement heifers, which are down 2 percent, suggesting inventory numbers will continue to shrink for at least a couple more years. Overall the report shows that cow-calf producers on average, while not in drastic liquidation mode, have not yet seen economic signals that would motivate them to expand their herds.