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CME: Cattle On Feed Expected To Show Gains

22 September 2011

US - Cattle on feed inventories on 1 September are expected to show significant gains compared to year ago levels, largely reflecting high feedlot placement levels in August, write Steve Meyer and Len Steiner.

Keep in mind that inventories on 1 August were up some 7.5 per cent from the previous year and in the short term inventories have nowhere to go but up as more calves become available for marketing.

The table below summarises the results of a survey of 11 analysts conducted by Dow Jones.

On average, these analysts expect August cattle placements to rise 7.7 per cent from the prior year although there is a wide range in their expectations.

Those on the low end of the range likely expect that the drought impact was mostly felt in June and July as producers in Texas and surrounding states rushed young feeder calves to market.

Other states have had better pasture conditions and thus less of an incentive to offer light animals for sale. On the other side of the spectrum are those that expect heavy placements to continue as limited pastureland, and overall high hay prices, negatively impacted the profitability of producers across the supply chain.

On average, analysts polled expect about 2.446 million head of cattle placed on feed in August. The last time we saw a higher August placement number was in August 1999 and at that time we had a much higher calf crop than we do today.

The increase in feedlot placements has a number of implications for US beef supplies and prices out front. By placing feeder cattle on feed at a younger age, and lower weight, producers will accelerate the time that it takes to bring a steer or heifer to market.

Cattle will spend more weeks in feedlots and animals will be younger and lighter than normal when they go to market. Those supplying beef to the Japanese market will likely find more cattle available to meet export conditions.

Putting cattle on feed early, by-passing the wheat grazing and/or pasture grazing, is a more expensive way of producing beef. This is one of the reasons why we think beef prices have nowhere to go but up in the coming months.

Higher prices will be needed to bring a margin in the beef production business, otherwise we will see further reductions of the US cattle herd. A larger portion of feeder cattle have moved from backgrounding and dry lots directly to feedlots, thus relying primarily on expensive grain and hay.

Availability of DDGs has helped but it is not enough to offset the overall net increase in costs. This path to market is also more management intensive, further adding to production costs.

Cattle marketings in August are expected to be up 5.7 per cent from a year ago. Note, however, that we had one more marketing day in August.

The USDA data, which is preliminary and subject to significant revisions, shows that steer and heifer slaughter in August was up only 1.7 per cent from the previous year. Lower than expected August marketings could further increase the 1 September inventory.


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