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CME: January Cattle on Feed Report Bullish

29 January 2013

US - Our initial read on Friday’s January Cattle on Feed report is bullish since December placements were significantly lower and 1 January inventories were lower than pre-report surveys indicated, write Steve Meyer and Len Steiner.

The key national data from the report appear in the table below as well as the average percentage-of-last-year figures form DowJones pre-report survey.

Feedlot Placements

Total US, Lots of >1000 Head Capacity

COF Average Placement Weight

Some key numbers and takeaways are:

  • Total on-feed supplies as of 1 January 2013 were 11.193 million head, 5.6 per cent lower than year ago levels. Prior to the report analysts were expecting total feedlot supplies to be down on 4.4 per cent from year ago levels.
  • December placements numbered 1.664 million head, a figure slightly smaller than one year ago. But recall from Thursday’s Daily Livestock Report that only one of the ten respondents to DowJones’ survey thought that this number would be lower than during December 2011 so the negative year-on-year number is a surprise. The 4.6 per cent difference between the "expected" and actual year-on-year change is, we think, significant and will likely be bullish for summer Live Cattle futures.
  • December marks the 10th month in 2012 in which placements have been smaller than one year earlier.
  • Continued high feed costs and extremely high breakevens remain the primary impediment to placing more cattle on feed. Most observers felt that limited grazing capacities and poor winter wheat conditions would drive cattle into feedlots. But that appears to have been trumped by high feed costs that are driving a trend for cattle to spend more time outside of feedlots. As that happens, the age of cattle coming to market will be higher. They will still almost all be under 30 months but older cattle in means heavier cattle in and heavier cattle out. Hard to see how they could get much bigger but we think it is likely.
  • Another month of lower placements means that the supply of cattle in feedlots continues to get more front-loaded. Our calculations indicate that, as of 1 January, there were roughly 3.706million cattle (these figures do not allow for death losses) that have been on feed for 120 days or more. That number is 4.4 per cent higher than one year ago. On the other hand, there were only 1.940 million cattle in feedlots on 1 January (down 19 per cent from last year) that had been there 90 to 120 days and 5.547 million that had been placed in the past 90 days — 6.7 per cent fewer than one year ago. While slaughter may run ahead of last year into early March, significantly lower numbers are coming.

The key take-away from the report is that beef supplies will be limited going forward and the latest survey supports our forecast for total cattle slaughter in first half of 2013 to be down 4.4 per cent from year ago levels. The key wildcard will be cow slaughter. We think the lack of forage will prevent producers from significant herd rebuilding in the short term. If rain comes to key cow-calf areas, we could see significant herd building beginning this spring and lasting into 2014. That would pull heifers out of the slaughter supply and tighten beef supplies even more. If rains don’t come in time for spring green-up, many producers will be in dire straits for roughage and more cows could move to slaughter, increasing 2013 supplies.

Daily Livestock Report - Copyright © 2008 CME. All rights reserved.

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