On-Feed Report Holds 2017 Supply Implications

USDA’s October Cattle on Feed report possessed some important implications about feeder cattle supply, said Nevil Speer, vice president of US operations for AgriClear Inc., a sholly owned subsidiary of TMX Group Ltd., in an article for Beef Magazine.

What’s more, the coming on-feed report scheduled for Nov. 18 could be very important in terms of deciphering the cattle market outlook for first half 2017, Speer said in an interview.

September placements totaled only 1.91 million head – down 2% versus 2015 and 9% versus the 5-year average.  While the year-over-year difference is relatively small, September was the first month since January that comparative placements were down from 2015.

From February thru August monthly placements averaged 7% above 2015 numbers and were nearly equal with the five-year average.

However, September placement action is even more important within the context of the broader feeder cattle supply, Speer said.

The graph clearly depicts that during the past five years feed yards wrestled with an ongoing story of shrinking feeder cattle supply, he said.

That trend reversed sharply, though, going into 2016.  This year’s supply marked a sharp increase compared with the previous year – 2016 started off with an additional 1.3 million head out in the country, or outside of feedlots.

So, despite better placement action through much of 2016 to date, total placements through September are up only about 800,000 head, Speer said.  In other words, given the starting inventory of an additional 1.3 million head, feeder cattle carryover into the final quarter of the year is equivalent to about 500,000 head.

 

FEEDER MARKET IMPLICATIONS

 

For the feeder market, that’s especially important at this point in the year, Speer said.  2016 spring-born calves are beginning to hit the market in earnest.

That’s compounded by the fact that 2016’s starting cow inventory totaled 30.33 million head – the equivalent of 1 million additional cows over 2015.

Bigger supply is clearly a driver for the feeder cattle market going forward, Speer said.  Negative closeouts and uncertain markets typically don’t facilitate seamless flow (as witnessed by September’s placement slowdown).

Moreover, there are ample feed supplies out in the country allowing sellers to fight the market, he said.   All of that could mean some peaks and valleys in placement patterns over the next six months or so, which is never good for the fed market on the other side.

 

ANOTHER WRINKLE

 

Another wrinkle in the fabric of the feeder and fed cattle markets is the unknown number of calves going into small, uncounted feedlots, Speer said.  Futures traders are beginning to grapple with this concept now, but the big problem for them is the unknowablness of it all.

Traders hate unknowns, and there likely will be various estimates of just how many there are soon.  None of the estimates can possibly be accurate, which only adds to the mystery of the first-half 2017 slaughter size and cattle prices.