Source: Rita Jane Gabbett, MEATINGPLACE, 7/25/11

USDA’s Friday afternoon Cattle on Feed report showed a 4.1 percent increase in cattle placed on feed in June compared to a year ago as severe droughts continued to push cattle into lots earlier than usual.

The increase was a wide swing from the 6.6 percent decline analysts (according to a Dow Jones pre-report survey) were expecting and could push cattle prices lower over the next six months, according to one analyst.

“Analysts expected placements to decline because they had been so strong in the prior three months and there is a limited number of cattle to be placed,” explained J.P.Morgan analyst Ken Goldman in a note to investors.

Reflecting the lack of available pasture forage, the number of placements in the two lightest weight classes rose 14 percent year on year.

“Eventually the market will experience a sudden reversal as ranchers run out of animals to place, yet for the next four to six months cattle prices could be lower than anticipated,” Goldman predicted.

Livestock analysts Steve Meyer and Len Steiner, however, noted the jump in placements data should be put in perspective. “This is the time of year when placements are at the lowest point and consequently even small shifts in placements from one month to the next appear quite large,” they wrote in the CME Group’s Daily Livestock Report. “Smaller placements are now expected in Augusts and September, which should limit cattle and beef supplies in the winter months and add to the normal weather risk premiums build into futures prices.”

USDA also released its twice yearly Cattle Inventory report on Friday, which showed more beef cows than expected but fewer heifers for beef cow replacement than analysts expected.

The DLR called the report “short term bearish” for cattle prices, but noted the USDA report also confirmed the U.S. cattle supply will continue to decline on the next two or three years, “paving the way to even higher beef prices.”

Purdue University Extension Economist Chris Hurt predicted finished cattle prices will reach summer lows in late August in the $106 to $110 per hundredweight range, similar to current prices. As the weather cools into September, he expects cattle prices to rise seasonally and average $112 to $116 in the fourth quarter.
First and second quarter prices in 2012 could set records with quarterly averages climbing to $115 to $120 and peak seasonal prices in the early spring of 2012 reaching $125, Hurt predicted.   

To view the USDA Cattle on Feed report click here. 
To view the USDA Cattle Inventory report click here. 
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