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Feedlots Unexpectedly Boost Cattle Buying as Feed Costs Drop

April 20, 2013
High corn prices are causing cattle feeders and dairy producers to consider new feed sources.
  
 
 

 

April 19 (Bloomberg) -- U.S. feedlot owners unexpectedly increased the number of cattle added to their herds in March compared with a year earlier as a drop in corn costs improved prospects for an end to operating losses.

About 1.899 million head of cattle entered feedlots, up 6 percent from 1.792 million in March 2012, the U.S. Department of Agriculture said today in a report. Thirteen analysts surveyed by Bloomberg News forecast a 1.5 percent decrease, on average. The feedlot herd totaled 10.909 million as of April 1, down 5 percent from a year earlier. Analysts expected the inventory on feed to be 5.8 percent lower.

The price of corn, the main ingredient in livestock feed, has tumbled 25 percent from a record in August, including 1.2 percent last month, on signs that inventories will be bigger than forecast and that U.S. growers will harvest the most ever this year. That means lower costs for feedlot owners, who have been losing money every month since May 2011, including about $118 per animal on average in March, according to Allendale Inc.

"The feedlots were anxious to put in feeders with corn values drifting lower," Don Roose, the president of U.S. Commodities Inc. in West Des Moines, Iowa, said in a telephone interview. "We think the outlook for profitability and the bottom line was better."

Feedlot operators typically buy year-old animals that weigh 500 pounds (227 kilograms) to 800 pounds, called feeders. The cattle are fattened on corn for four to five months until they weigh about 1,300 pounds, when they are sold to meatpackers.

 

Losses

Losses by feedlot owners were the biggest last year in July at $320 a head because of higher feed costs, said Rich Nelson, Allendale’s chief strategist in McHenry, Illinois. The slump continued into 2013, with losses of $160 per animal in January, $145 in February and $118 in March, he said.

More cattle being fattened for slaughter will put pressure on prices, said Mark Schultz, the chief analyst at Northstar Commodity Investments Inc. in Minneapolis. Live-cattle futures may open 0.5 cent to 0.8 cent a pound lower on April 22, he said.

The report showed "obviously more cattle than expected," Schultz said in a telephone interview after the report. "You’re going to have more cattle on corn to be fed than what we had earlier thought, so they’re moving a little bit quicker."

Feedlots sold about 1.771 million animals to meatpackers last month, down 7.7 percent from a year earlier, the USDA said. Analysts expected a 6.1 percent drop, on average.

Cattle futures for June delivery fell 0.1 percent to settle at $1.213 a pound at 1 p.m. on the Chicago Mercantile Exchange. The price is down 8.3 percent this year.

Feeder-cattle futures for August settlement declined 0.8 percent to $1.4605 a pound. Prices have dropped 5.3 percent in 2013.

 

--Editors: Steve Stroth, Thomas Galatola

 

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net

 

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.

 

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RELATED TOPICS: Marketing, Livestock, Cattle

 
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