Shrinking Inventories Make Cattle on Feed Report Market Friendly

USDA tallies lower-than-expected inventories and placements. August marketing top expectations. All three key numbers are market friendly for futures.

Published on: Sep 20, 2013

USDA tallied the Sept. 1, 2013 cattle on feed inventory at 9.876 million head, that's 92.3% of the Sept. 1, 2012 value and about 0.7% below the average trade guess in advance of the report.

Based on surveys, USDA estimated feedlots placed 1.788 million cattle in August. That was abouyt 89.3% of August 2012 placements and about 0.4% less than traders expected.

August marketings totaled 1.883 million head, down 3.9% from last year, but about 0.1% more than the average trade guess.

In August, feedlots placed fewer cattle than traders expected for the second straight month. That further deepens the potential hole in December-March fed cattle marketings. Holes in marketings fuel predictions of higher prices.

USDA tallies lower-than-expected inventories and placements. August marketing top expectations. All three key numbers are market friendly for futures.
USDA tallies lower-than-expected inventories and placements. August marketing top expectations. All three key numbers are market friendly for futures.

Watch for dirt kickers

Cattle owners are adept at kicking a little dirt in such holes each time they walk by. They can delay a few late fall cattle or accelerate a few spring cattle. Holes often end up shallower than early predictions, with lower price peaks.

This go around, feedlots will have help kicking dirt in the hole. USDA projects first quarter 2014 pork production up 2.65% from this year. First-quarter broiler production is projected up 3.1% from 2013's first quarter. 

For all of 2014 USDA projects beef production down 5.7% from 2013. Pork production is projected up 3.1%. Broiler output is positioning to rise about 2.5%. Both pork and chicken are gearing up to fill some of the gap from less beef. On the surface it looks like pork may be the stiffest competition.

Shrinking Inventories Make Cattle on Feed Report Market Friendly

Look at pounds as well as percents

However keep in mind we produce a lot more chicken, about 38 billion pounds, than we do beef or pork, about 24 billion pounds each. From another angle, USDA projects 2014 beef production down 1.449 billion pounds, pork up 739 million pounds and broilers up 931 million pounds. The gains in pork and poultry top the projected reduction in beef by about 144 million pounds, with the biggest gain in chickens.

Population growth can absorb some the extra meat. Improving economic recovery would boost overall demand. Exports are always uncertain. They depend on policy initiatives, strength of the world economy and relative currency exchange rates.

"Lower beef production gives the pork industry the opportunity to expand somewhat to gain a bigger share of the consumption that beef will be losing in 2014," notes Purdue University economist Chris Hurt. "However, rising competition from poultry trims the size of expansion that would drive the pork industry to a breakeven situation.

"Bringing all of these factors together, means that the pork industry should strive for a modest expansion," cautions Hurt. His advice to individual pork producers is to limit expansion to 2% to 3%.