Fewer cattle on feed in April than expected.
By: Darrell Mark, SDSU Economics Adjunct Professor
According to USDA’s April Cattle on Feed report, released last Friday, there were 10.86 million head of cattle in feedyards with more than 1,000 head capacities as of April 1, 2014. That’s just over 100,000 head, or 1% less than expected (Table 1). Steers comprised 65.1% of the total on feed inventory, equivalent to 7.066 million head. Heifers on feed totaled 3.71 million head, accounting for 34.2% of the total cattle on feed. Cows and bulls on feed were 0.8% of total inventory at 84,000 head.
While the total April 1 cattle on feed inventory was slightly lower than expected, lending to the bullishness of the reported numbers, it was still quite close to year-ago levels. Given the well-documented decline in total cattle numbers in recent years, it may seem unexpected that total cattle on feed numbers are not much lower than a year ago. Placements of available cattle have been ramped up significantly in recent months as cattle feeders have sought to take advantage of improved feeding margins. According to last week’s report, March placements totaled only 1.795 million head, which is nearly a 5% reduction from March 2013 (Table 1). However, cumulative placements since October 2013 are about 5% higher than the same time period a year earlier, led by sharply higher-than-a-year-ago placements in December, January, and February. In general, though, placements this winter have included more light weight feeder calves. From December through March, U.S. cattle feeders placed 5% more calves weighing less than 600 pounds than the same time period a year ago and 10% more calves weighing 600-699 pounds.
The relatively aggressive winter placement pattern has two important implications for the cattle market. First, it does increase total cattle on feed numbers, but not the supply of market-ready slaughter cattle. As of April 1, 2014, the number of cattle that had been on feed for at least 120 days was 3.99 million head. That’s more than 10% less than a year ago. This has been supportive to the record high fed cattle prices realized in the last couple of months. It also suggests that slaughter cattle supplies will increase in the upcoming months, which will weigh on fed cattle prices this summer. Secondly, the increase in placements this winter will likely result in scarce supplies of feeder cattle to place in feedyards in the upcoming months. The April Cattle on Feed report is likely to be one of the first to show a slowing in cattle placements, wherein March placements were reported to be down almost 5% from a year ago. That comes as a bit of surprise to the trade, which, on average, expected placements to increase by 1-2% compared to last year. Based on cattle inventory data as of January 1, 2014, the residual supply of feeder cattle available to be placed at the beginning of the year was 24.8 million head, which was 3% below a year ago. More recently, receipts of feeder and stocker cattle sales at auction markets, direct markets, and video/internet sales have dropped 10-15% compared to a year ago, indicating that supplies of feeder cattle may be dwindling quickly.
While the placements and on feed inventory numbers from the April Cattle on Feed report were fairly bullish relative to trade expectations, March marketings were viewed has neutral to bearish. Total fed cattle marketings were 1.66 million head in March, which was 3.7% below a year ago (Table 1). Pre-release expectations were for a 3.5% decline in March marketings. Steer and heifer slaughter during March was 4.3% below a year ago, consistent with the marketings figure from the Cattle on Feed report.
The April Cattle on Feed report not only supports forecasts for lower fed cattle prices this summer and shrinking supplies of feeder cattle, but it also supports the expected trend towards expansion in cow herd numbers. The proportion of heifers comprising the total cattle on feed inventory, at 34.2% on April 1, 2014, is down from 36-37% in recent years (on April 1). Steers have grown to a larger portion of on feed numbers: 65.1% on April 1, 2014 versus 63% in previous years. And, while the feedlot inventory of cows has increased in the last several months, it is likely that these cows are being dry-lotted in response to drought and lack of feed from pasture/range in some areas of the country as beef cow slaughter is down 9% year-to-date.
Disclaimer: The information in this report is believed to be reliable and correct. However, no guarantee or warranty is provided for its accuracy or completeness. This information is provided exclusively for educational purposes and any action or inaction or decisions made as the result of reading this material is solely the responsibility of readers. The author and South Dakota State University disclaim any responsibility for loss associated with the use of this information. There is substantial risk of loss in trading commodity futures contracts and traders should consult their brokers for a full disclosure of these risks to determine whether such trading is suitable for them in light of their circumstances and financial resources.