The somewhat lower than expected March 1 inventory of cattle on feed is a bit friendly to Monday's markets. February placements also came in a bit below average trade expectations. That's also a bit friendly.
February fed cattle marketings were down a smaller amount than traders generally expected. Those figures all point to continued tightening of fed cattle supplies.
Cattle markets face ample hurdles
Tight feedlot supplies along with growing population suggest beef fundamentals are sound and should support higher prices in the cattle complex. Beef and cattle prices do seem likely to move record high this year. However cattle have several hurdles to overcome to record those new highs. A short list of price dampers includes:
Feedlot closeouts have been negative for months.
Shrinking cattle supplies and negative packing margins prompted Cargill to close its plant in Plainview, Texas. Dismal or negative margins deter packers from bidding up to get cash cattle.
Choice wholesale beef prices have made several assaults on the $200 per cwt. mark and fell back.
Cash fed cattle meet stiff resistance in the $130 per cwt. area.
Despite record highs on Wall Street, high gasoline prices and expiration of the payroll tax cut leave consumers with little spare cash. One result is they bypass beef at the meat counter in favor or lower-priced pork and chicken.
Recent wholesale pork prices have been about 9% below a year ago. Pork has a stronger price edge to the extent retailers pass that price advantage on to consumers.
While USDA project beef production down 3.1% in 2013, pork production is projected up half a percent and Broiler output is projected to rise 2.4%.
Recent weakness in pork exports results in more pork being available on the domestic market. Thousands of dead pigs recently discovered in a Shanghai river have raised concerns about water safety and hog production in China. Chinese consumers may well cut back on pork in the near term.
Grain prices have retreated from their September 2012 drought-induced high. But feed remains pricy. Grains show no sign of retreating to their pre-2008 levels. Relatively high grain prices continue to rob land in rotational pastures that is suitable for cropping from forages.
The bright spot is that all livestock producers are betting on 2013 bringing more normal crops and lower prices. Normal crops, combined with production efficiencies high feed costs forced them to make, would dramatically boost livestock margins. Pork producers we talk with are gearing up to cash in on those better margins. Lower feed prices would dramatically improve cattle feeding margins. But competition from other meat protein sources will not ease.
Looking at the numbers
Cattle and calves on feed for slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 10.857 million head on March 1, 2013. The inventory was 7% below March 1, 2012. On average, traders expected a 6.5% drop.
Placements in feedlots during February totaled 1.48 million, 13.5% below
2012 and well below the average trade guess of down 9%. Net placements were 1.42 million head. During February, placements of cattle and calves weighing less than 600 pounds were 355,000, 600 to 699 pounds were 270,000, 700 to 799 pounds were 407,000 and 800 pounds and greater were 450,000. Placements are the lowest for February since the series began in 1996.
Marketings of fed cattle during February totaled 1.64 million, 6.7% below 2012. The average trade guess was down 7.3%, so more cattle came to market in February than traders expected.
Other disappearance totaled 60,000 during February, 35% below 2012.