Lower Feedlot Placement Estimates Stir Debate

The USDA’s monthly Cattle-on-Feed report is due for release today at 3:00 pm EST, and analyst estimates of the figures already are causing a stir.  The number of young cattle entering the feedlots is expected to be markedly lower than a year ago, but whether it’s a significant move is the question.

The average of market analyst estimates in a Reuters survey showed they expected the USDA to report 1.771 million head were placed on feed in January, 13.7% fewer than a year earlier.  One less business day this year could be part of the reason for the expected decline, but feedlot placements last year were the largest for a January going back to 2006.

That would make this year’s placement rate seem smaller by comparison, even if it were about average.

A graph from the Livestock Marketing Information Center shows the rate of placements for the last two years along with the average of the previous five years.  A 1.771-million-head placement rate would be below all three lines.  It would be 60,800 head, or 3.32%, below the average of 1.832 million, a far less impressive decline than comparing it to a year ago.

Market sources said the price of feeder cattle compared with the price of the finished product going to the packers was too high in January.  Cattle feeders running potential break-even analysis found that getting a profitable return on investment at that time was impossible in a bearish commodity market.

Many potential buyers, therefore, moved to the sidelines.

Cattle futures markets already are predicting a price decline, especially in feeder cattle.  Nearby Mar feeders settled Thursday at $202.55 per cwt, down $0.55 while the CME Feeder Cattle Index of current cash prices was $210.48.

Trade analysts also predicted the USDA report would show feedlots sold 1.641 million head for slaughter in January, a decline of 8.2% from a year earlier and down 140,200, or 7.87%, from the average of 1.781 million.

Because of unprofitable margins, feedlots kept cattle on feed longer than normal to pack on a few extra pounds.  This, along with fewer placements in previous months, led to reduced sales to packers as shown by lower slaughter rates.

The upshot of the reduced placements and slower marketings is that the number of cattle left on feed as of Feb. 1 was expected to be very close to that of a year earlier.  Analysts said they expected 10.749 million head in the feedlots, a decline of only 0.1% from 2014.

An LMIC graph shows that if analyst estimates are correct, the number of cattle on feed this year is tracking last year pretty well.  However, last year’s slow increase into April is contrary to the average trend.  A crossing of last year’s lines and a slow decline would be more in keeping with the average, which shows a falling away into the August low.