Cattle & Corn Comments - November 19, 2012 Back »

November Cattle on Feed Report

USDA released its November Cattle on Feed Report last Friday, confirming expectations for a lower on feed inventory and a sharp reduction in October placements.  As shown in Table 1, the November 1, 2012 on feed inventory totaled 11.254 million head, 5.3% below last year and close to analysts’ pre-release expectations.  Although it is the smallest November 1 number of cattle on feed since 2008, the on feed inventory is only 1.7% below the previous 5-year average.  As expected, cattle feeders also reduced October 2012 placements by 312,000 head, or 12.5%, compared to last year.  Negative feeding margins and the shrinking herd size contributed to last month’s placements being the smallest for any October since the current data series began in 1996.  Interestingly, October 2012 had two more business days than October 2011, and presumably more days to buy and place cattle.  So, on an average daily basis, placements were 20% lower than last year.  The two extra days this year also contributed to a 2.8% increase in October marketings relative to last year.  Still, the 1.837 marketings figure was close to pre-release expectations (see Table 1).  Overall, reaction to the report was neutral, with all the actual numbers coming in close to expectations.

The impact of the drought driving corn prices sharply higher this summer is quite evident in feedlot placements since June.  From June to October, placements totaled 9.44 million head.  That’s 1.2 million head, or 11.4%, less than last year and 7.3% below the 5-year average.  Deeply negative margins on marketings during those months and expectations for continued poor feeding margins lowered placements during the last five months.  Interestingly, the reduction in placements was achieved despite the drought sharply limiting pasture and range productivity, which prompted early weaning and a need for backgrounding operations and feedlots to take in these calves.  While that likely occurred in some places, the overall declines in cattle numbers and high prices of all feedstuffs resulted in declines in feedlot inventories and pushed available calves into backgrounding programs.  October placements, for example, showed a 19% and 15% reduction in feeder cattle weighing less than 600 lb and 600-699 lb, respectively.  Third quarter placements of these feeder cattle weighing less than 700 lb were down 20% as well.  It is the heaviest feeder cattle, weighing over 800 lb, that showed the smallest decline in October.

Interestingly, South Dakota, Iowa, and Nebraska were among the six states that had placements higher than the national average, on a percent of a year-ago basis.  While the western states of California, Washington, and Idaho actually placed the same or more cattle than last year, South Dakota, Iowa, and Nebraska were the only states in the worst of the drought that didn’t see a larger proportional decline in placements than the national average.  While South Dakota placements in October of 71,000 head were 5.3% below last year, Iowa’s placements of 146,000 head were 6.6% higher than last year.  Nebraska’s placements of 590,000 head were 11.3% less than last year, but still a smaller reduction than the national average decrease of 12.5%.  In other words, a proportionally larger share of the declining feeder cattle supply is being placed in these three states, which is a trend that has generally existed for some time.  Likely a key driver behind this is the large percentage of the drought-stressed corn crop in these states being cut for silage, which can lower cost of gain compared to non-silage based rations (see the November 5 edition of Cattle & Corn Comments for details).  Thus, these Northern Plains states may have gained a slight cost of gain advantage.  However, it is important to note that the 2011 drought in the Southern Plains states ramped up placements in the south last year, so some of the large year-over-year reduction in placements in Texas and Oklahoma is a function of higher than normal placements last year.

It appears like the trend towards lower feedyard placements will continue for months to come.  Not only are positive projected closeouts hard to come by, but available feeder cattle supplies continue to decline.  Feeder cattle supplies have diminished rapidly in the past year due to the shrinking beef cow herd and feedyards ‘pulling ahead’ placements over the last couple years.  As a result, the structural changes evident in the feeding industry, which include fewer, but larger feedyards, will continue for another year or two, at minimum.

Table 1

  USDA Actual Pre-Release Expectations
Head (millions) % of Yr Ago Average Range
Placements, October 2.180 87.5 87.3 83.3-92.0
Marketings, October 1.837 102.8 102.6 100.8-103.5
On Feed, November 1 11.254 94.7 94.6 93.5-96.0

 


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.

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