Source: MEATINGPLACE.COM, 4/22/11
Meatingplace asked Jim Robb, director of the Livestock Marketing Information Center in Denver, to interpret Thursday’s USDA cattle-on-feed report, which showed cattle and calves on feed for slaughter market on April 1 were up 5 percent from a year ago.
How did the cattle-on-feed data compare with expectations, and what trends are you seeing?
If we look at the big picture, the numbers were largely in line with the pre-report estimates. Under the surface, the numbers are a little bit higher than expected, but explainable by the trade side of the equation.
The more important part of the puzzle is the placements in the heaviest weight category, over 800 pounds. This category of numbers was a little surprising. Some animals were delayed from entering feed yards in the last couple of months, so they got heavier. In drought areas, ranchers fed hay, and animals kept gaining weight, as they hoped for rain. Prices at such high levels attracted them into the yard.
Some people, where they did have pasture, continued to put extra weight on those animals before they entered the feed yards. They were out there, they were growing in the country, and then prices pulled them in.
What will be the effect of this jump in heavyweight placements?
This surprise in placements is going to have some market impact, probably this summer. Most of these cattle will be sold by the feedlot in the mid-August and mid-September timeframe. We raised our forecast for the number of steers and heifers that will be marketed in the summer quarter by 100,000.
How will the larger numbers of heavyweight cattle affect pricing?
We’ve bunched up animals moving through the feedlot system. There will be a bulge. Futures markets will take a pause, especially with respect to the August futures market pricing because of this rather subtle influence of all the cattle in the heavyweight placement category.
I don’t think this report changes the overall price profile, but it adds fuel to the argument that the futures are at the high end of the range in terms of the fed cattle.
What is bringing in the cattle now?
Drought in Texas, Oklahoma and New Mexico has bolstered placements. It has also influenced the flow of Mexican feeder cattle. Because of the drought and because of higher cattle prices in the U.S., U.S. imports of Mexican feeder cattle year to date are the highest since 2001.
We see this manifest in a couple of different ways. Animals that would normally go on pasture programs are largely going directly into feedlots in Texas. The other subtle impact of drought is on the number of animals that exit feedlots and go to grass.
How long will this trend continue?
In the drought areas of the U.S., many of the animals have already entered feed yards. Unless the drought’s reach expands significantly geographically, beyond Texas, Oklahoma and Mexico, a lot of the drought-induced impact has already shown up.
We may see the placement patterns spill over into April. It’s continuing at least into the first three weeks of April. The April 1 on feed number and the May 1 on feed inventories will still see a little influence.
What other factors are likely to affect futures prices?
We’ve got these prices at very high levels. The U.S. economy has to grow faster than it has to support these futures that we have today, on fed cattle and feeder cattle contracts. The upside has been mitigated coming into the summer months on the futures prices.
Exports have been robust, led by many weeks of exports to South Korea. We think exports will remain strong, but we think this large year to year increase we saw in the first quarter will moderate dramatically for the balance of this year because of higher prices.
The overall cyclical decline in the U.S. cattle inventory will begin to mitigate placement into feed yards. Year to year increases in placements are not sustainable given the declining supplies of cattle available, due to lack of profitability in past years because of record grain prices and the soft U.S. economy.
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