Strong feedlot demand for feeder cattle helps explain the strong feeder price rally at the end of 2016. December feedlot placements were 117.6 percent of last year, significantly larger than expected. This follows a 15 percent year over year increase in placements in November. December feedlot marketings were 106.8 percent of one year ago; close to expectations. The January 1 on-feed inventory was fractionally above one year ago at 100.3 percent of last year.
For all of 2016, feedlot placements were up 5.8 percent with fourth quarter placements up a strong 7.3 percent year over year. However, marketings increased even more sharply with twelve month total marketings up 6.2 percent year over year. Fourth quarter marketings were up an impressive 9.2 percent from 2015 levels.
December placements were up the most in the southern plains with Texas up 23 percent and Oklahoma up 54 percent year over year. Strong monthly placements were noted in most major feeding states including Nebraska (up 15 percent); Kansas (up 18 percent); Colorado (up 13 percent; and Iowa (up 16 percent), all compared to one year ago. Lower placements were noted in Washington, Idaho and South Dakota where winter weather likely was a factor in restricting December placements.
December placements were concentrated at lighter weights. Placements weighing 700-800 pounds were up 26.1 percent year over year and placements weighing 600-700 pounds were up 26.8 percent compared to last year. Under 600 pound placements were up 16.0 percent while over 800 pound placements were up only 4.5 percent compared to one year ago. Most of the increased placements will be marketed in the last half of the second quarter and in the third quarter of 2017. There is ample opportunity yet for winter weather to impact production and further delay the timing of these cattle.
Lighter weight December placements may be due in part to the likelihood that heifers accounted for more relatively more placements compared to steers. The quarterly breakdown of steers and heifers on feed in the latest report showed that the January 1 inventory of steers on feed were 2.0 percent less than last year while the inventory of heifers on feed was 5.0 percent larger year over year. This reflects both aggressive steer marketing in 2016 as well as a slowdown in heifer retention last year. Steer slaughter was up 7.6 percent year over year in 2016 and was up 8.7 percent in the fourth quarter of the year. Heifers on feed January 1 were up despite an increase in heifer slaughter in 2016, up 4.7 percent for the year, and up a whopping 11.4 percent in the fourth quarter.
Strong fed cattle prices out of the chute in 2017 are in part due to aggressive fed marketing at the end of 2016, compounded by winter weather. Current fed cattle prices are a bit stronger than expected and may be the seasonal high prices coming a bit earlier than expected. The larger placements imply that supply pressure will build into the middle and later part of the year. The challenge will be for feedlots to continue marketing aggressively to minimize the supply pressure while we see how beef demand adjusts to continued retail price decreases in the coming months.