Economist: More Calves Await Feedlot Placement

A glance at the numbers shows there still are lots of feeder cattle poised to head to the feed yards, said Nevil Speer, vice president of US operations for AgriClear Inc., in a market outlook for Beef Magazine.

It appears there are plenty of calves that still need to make their way to the feedlot, Speer said.  This has several implications:

  • 2017’s feeder cattle inventory count by USDA will be highly anticipated by traders.
  • Bigger numbers will likely limit upside seasonality for the feeder market this spring.
  • At some point, those feeder cattle have to be placed, fed and reckoned with on the other side, which could pressure the fed market when they come for slaughter.

 

ON FEED IMPLICATIONS

 

The USDA’s October Cattle on Feed report held some important implications, he said.  Most notably, placements in September totaled only 1.91 million head, down 2% from 2015.

While the year-over-year difference was relatively small, September was the first month since January that comparative placements were below a year earlier, Speer said.  During the previous seven months (February through August) monthly placements averaged 7% above 2015 and were nearly equal with the five-year average.

Then, October placements also were down versus 2015.

Pre-report expectations for November placements clearly were biased toward compensation – that is, November would see more feed yard purchasing because of the relative slowness in September and October, he said.

Those expectations proved accurate, Speer said.  The report indicated 1.843 million head were placed in November, up 241,000, or 15%, versus last year.

 

TOTAL COMPARISONS

 

However, the three-month total (September, October, November) tells a broader story that has implications going into 2017, he said.  That is, the fall run totals for 2016 equal 5.91 million head, only 80,000 more than last year, and that’s against a slow 2015 because of last year’s sharp market downturn.  Thus, for more context, a comparison to the 2010-2014 average is necessary.

Feed yards are operating in an environment of larger supply, Speer said.  He estimated the Jan. 1 feeder cattle inventory outside feedlots to be 1.3 million head more than in 2015.

Total placements through August were up 834,000 head versus 2015.  Tack on the additional 80,000 head during this year’s fall run (versus last year’s pace), and the difference totals to only 914,000 head.

In other words, there still are about 400,000 head of cattle out on grass or in small grow yards waiting to be placed, he said.  Not to mention, the US calved about 1 million more cows in 2016 than in 2015.

 

CASH CATTLE TRADE QUIET

 

Average auction prices Wednesday were $1.40 per cwt higher at $116.79, versus $115.39 a week earlier.  Cash cattle then traded at $116.50 to mostly $118 on a live basis, steady with the upper end of the previous week’s range.  Dressed-basis trades were reported at $188 versus the previous week’s range of $188 to $190.

The USDA’s choice cutout Monday was down $1.46 per cwt at $197.35 per cwt, while select was off $1.28 at $191.94.  The choice/select spread narrowed to $5.41 from $5.59 with 101 loads of fabricated product sold into the spot market.

The USDA said wholesale beef prices were lower in light-to-moderate buying interest and moderate offerings.  Chucks and rounds were mostly lower, while ribs and loins were steady to firm.  Trimmings mostly were flat amid light buying interest and offerings.

The CME Feeder Cattle Index for the seven days ended Friday was $133.11 per cwt, down $0.20.  This compares with Monday’s Jan settlement of $129.27, up $0.95.