July 26, 2010

 

Darrell R. Mark, Ph.D., Assoc. Professor

Department of Agricultural Economics, University of Nebraska–Lincoln

 

 

Cattle On Feed Mostly Neutral

 

USDA released its July Cattle on Feed Report last Friday and reported inventory levels relatively close to pre-release expectations.  June net placements of cattle did jump 17.9% compared to last year, slightly less than the 20% expected.  While a nearly 20% increase in placements initially sounds like a big number, and follows a 25% increase in May placements, the comparison to relatively small placements in May and June 2009 results in these large year-over-year comparisons.  When compared to the previous 5-year average, June placements this year were actually down 1.5%.  Still, it appears like more cattle are being placed against the late fourth quarter and beginning of the first quarter compared to last year’s summer placements.  This is further supported by the largest placement increase in June being in the less than 600 lb category.  At 440,000 head, placements weighing less than 600 lb were 40% higher this year.  The next highest increase in June placements occurred for the 800+ lb category (up nearly 16%).

 

While placements were somewhat below expectations, lending to a bullish reaction to the report, June marketings were also somewhat below expectations, which is slightly bearish.  June marketings were 1.997 million head, 0.4% higher than June 2009.  Prior to the report’s release, expectations were for June placements to be about 1.7% higher.  Still, feedlots have remained current, which has supported fed cattle prices in recent weeks.  Carcass weights continue to run below year-ago levels, although that gap has declined over the summer.  The number of cattle on feed for more than 120 days, at 3.248 million head on July 1, is about 10% lower than last year.  So, front-end supply doesn’t look to be oppressive to prices.  Additionally, marketings as a percentage of the on-feed inventory are at about 19%, a level that suggests relatively current conditions.

 

The large increase in placements and small increase in marketings translated to an on-feed inventory increase of 3.3% for July 1, close to pre-release expectations.  The July 1 inventory for feedyards with more than 1,000 head capacities was 10.07 million head.  The semi-annual cattle inventory report, also released last Friday, indicated that the total on-feed number for all feedyards, regardless of size, was 12 million head, about 3.4% higher than last year.  Thus, it appears like cattle inventories in smaller sized feedyards have grown over the last year similarly to larger feedyards. 

 

The Cattle Inventory report also included the first estimate for the 2010 calf crop.  At 35.4 million head, the calf crop is estimated to be about 1.2% less than last year and the smallest in decades.  Thus, cattle feeders trying to keep lots full will likely find stiff competition for those calves.  And, it doesn’t appear like the calf crop will be growing any time soon either:  the beef cow herd and heifers held for beef cow replacements each saw 2% declines in the Cattle Inventory report as well.  For more details on the Cattle Inventory Report, read the LMIC Monitor at http://lmic.info.

 

Overall reaction to both reports will be relatively neutral as they contained few surprises relative to pre-release expectations.  However, given that they continue confirm tighter and tighter cattle inventory levels, the information should overall be supportive to cattle prices in both the short and long run.

 

The Markets

 

Last week’s fed cattle trade was a pleasant surprise for cattle feeders expecting a mostly steady week.  An early-week rally in boxed beef prices, combined with supportive futures prices, led to a $1-2 rally in cash cattle prices.  Texas, Kansas, and Nebraska saw an active trade on Thursday, with the 5-Area price averaging $94.79/cwt on a live weight basis, or $150.44/cwt on a dress basis for the week.  Last week’s boxed beef prices averaged $0.90/cwt higher than the previous week, after settling back from the early week gains.  The Choice-Select spread was $8.88/cwt, similar to last week’s levels.  Yearling steer prices were about $2/cwt lower in Nebraska and Montana last week and mostly steady in Oklahoma.  Steer calf prices were up more than $4/cwt in Nebraska, while Oklahoma calf prices were down $1-2/cwt.  Corn prices, basis Omaha, NE, were $0.16/bu lower for the week through Thursday.  However, DDGS and WDGS prices were steady to higher for the week.

 

		Cattle or Meat Category	Week of	Week of	Week of
Data Source: USDA-AMS Market News			7/23/10	07/16/10	07/24/09
5-Area Fed Steer	all grades, live weight, $/cwt		$94.79	$93.42	$83.29
	all grades, dressed weight, $/cwt		$150.44	$150.19	$132.20
Boxed Beef	Choice Price, 600-900 lb., $/cwt		$154.94	$154.04	$141.45
	Choice-Select Spread, $/cwt		$8.88	$9.02	$6.24
700-800 lb. Feeder Steer Price	Montana 3-market average, $/cwt		$105.00	$107.30	$108.80
	Nebraska 7-market average, $/cwt		$119.34	$121.19	$104.65
	Oklahoma 8-market average, $/cwt		$114.54	$114.47	$103.08
500-600 lb. Feeder Steer Price	Montana 3-market average, $/cwt		--	$123.00	--
	Nebraska 7-market average, $/cwt		$139.65	$134.99	$119.00
	Oklahoma 8-market average, $/cwt		$125.38	$127.01	$106.40
Feed Grains	Corn, Omaha, NE, $/bu (Thursday)		$3.43	$3.59	$3.09
	DDGS Price, Nebraska, $/ton		$95.00	$94.60	$82.80
	WDGS Price, Nebraska, $/ton		$31.40	$28.60	$34.60