Larger Than Expected September Cattle Marketings are Friendly

Inventories and placements come in near trade expectations; More heifers on feed than expected do not signal retention for beef cow herd expansion

Published on: Oct 31, 2013

Cattle and calves on feed for slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 10.144 million head on Oct. 1, 2013. The inventory was 8% below Oct. 1, 2012 and close to the average trade guess.

Placements in feedlots during September totaled 2.03 million, 1% above 2012 and also near trade guesses.

Marketings of fed cattle during September totaled 1.70 million, 6% above 2012. A few more cattle came to market than traders generally expected. That's a bit friendly to prices.

Cattle and beef supplies will drop

The 8% drop in the Oct. 1 cattle on feed inventory points to significantly lower first quarter 2014 fed cattle marketings. The limited availability of cows will further constrain slaughter. That points to higher cattle and beef prices.

Inventories and placements come in near trade expectations; More heifers on feed than expected do not signal retention for beef cow herd expansion
Inventories and placements come in near trade expectations; More heifers on feed than expected do not signal retention for beef cow herd expansion

On Wednesday, Oct. 23, cash fed cattle traded at $132 to $134, punching through the previous record cash trade of $130 set in March 2012.

Larger than Expected September Cattle Marketings Are Friendly

Beef buying interest holds firm

Choice cutout advanced $4.71 over the first three days of this week to Wednesday's $205.88. Select advanced $4.69 to $190.09. Those strong gains in wholesale prices suggest retailers are currently willing to pay up to get beef. That suggests consumer buying interest in beef remains firm.

However, Thanksgiving is right around the corner. Retail featuring may soon shift to turkey and maybe pork, which carry lower prices per pound.

To keep cash fed cattle in the $130 to $135 area, choice cutout needs to consistently top $200. It ran above $200 from May 2, 12013 through June 18, with the peak of that rally being $211.37 on May 23. It subsequently held below $200 until Oct. 23. The summer low was $186.32 on July 31.

Longer term, pork and poultry producers are expanding in response to lower feed prices which will boost production. They will be able to bring more product to market sooner than beef, whose breeding and feeding cycle is much longer.

First quarter rally likely

Last year, cattle futures rallied sharply at the end of the year on expectations that high feed costs would negatively impact cattle performance and reduce the supply of beef coming to market. However, wide spread use of beta agonists, including Zilmax, boosted feed conversion rates preventing a sharp first quarter supply reduction. Cattle prices corrected lower.

This year significantly fewer cattle are on feed going into winter. Zilmax is basically gone. Feed costs are much lower, but that may not matter if cattle are not available to feed. The recent spike in feeder cattle prices was a reminder that feeder cattle supplies remain tight.

Feeder cattle will hold good value

Feeder cattle and calf supplies will likely keep tightening. Once a quarter USDA asks respondents for the Cattle on Feed Report to provide data on heifers in feedlots.

On Oct. 1, feedlots with 1,000 or more head capacity reported having 6.442 million steers on feed and 3.662 million heifers on feed. Heifers comprised 36.2% of the feedlot steer and heifer population. That's actually up from 35.4% last year, 36.0% in 2011 but below 36.8% in 2010.

Many analysts, including ourselves, expected heifers to represent a smaller share of the on-feed inventory. The logic: strong returns to beef and respectable returns to dairy encourage producers to expand both the beef and dairy herds. Apparently, the lure of pricy feeder cattle has enticed cow-calf producers to let feedlots have heifers and stash their cash in the bank.

Still, the shrinking on feed inventory and producers eventually retaining heifers for herd expansion and keeping more of their best cows, rather than culling them, will further tighten number of cattle coming to slaughter.