TAGS: Marketing, Overseas
December 18, 2014
USDA’s December 1 Cattle on Feed report showed a sharp increase in the number of cattle placed on feed during November – up 14% from a year earlier. In fact, 9 of the 12 states included in the monthly survey posted double digit gains over the prior year. Coupled with a 3% gain over the prior year for fed cattle marketed during November, the on feed inventory jumped 8% from a year earlier.
For all of 2017, feedlot placements were up 9% from 2016, the largest annual tally since 2011. It’s not much of a mystery why there was such a significant increase – higher fed cattle prices than expected, relatively low feed costs, and perhaps, most important, a 14% drop in the breakeven price of fed cattle marketed during 2017 compared to 2016. These factors in concert left feedlots with an average per head feeding margin during the year of $235. That compares to -$4 per head for 2016 and -$110 per head in 2015. Simply put, it was a solid year for feeding margins and feedlots are motivated to continue filling feedlot capacity into 2018.
Again, relatively low feed costs and breakeven prices are supportive to margin expectations. Cattle inventory numbers will also increase, feeder cattle supplies will continue to increase and feeder cattle prices will be pressured lower for 2018.
We can work through the weight breakdowns of cattle placed during the month in an attempt to estimate when those cattle will be marketed, or we can suffice it to say, the placement figure serves as a pretty solid indicator of the direction of fed cattle supplies during the first half of the year. I opt for the latter, and I use the monthly feedlot data in combination with my slaughter model to develop monthly steer and heifer slaughter projections.
Aside from the distribution of cattle within each weight range, there are numerous other factors affecting the final marketing date for those cattle. Within that steer and heifer supply, heifers are the biggest variable and are dependent upon retention.
Along with the increased fed cattle supplies going into 2018, I expect carcass weights will increase. They have steadily increased since hitting a low for the year in early May, and on a combined weighted average for steers and heifers, are up 74 lbs. into mid-December. Those 74 lbs. coupled with increased cattle numbers have resulted in a notable increase in beef tonnage.
Feedlot placements will continue to trend higher. The economic incentives for this increased supply will leave the market facing not only 5% more beef in 2018, but also nearly 4% more pork and 2% more poultry and thus, a record per capita meat supply. Demand is the key, both domestic and global. Maximum U.S. participation in global demand depends upon concluding bi-lateral trade agreements in Asia that represent both free and fair trade, as well as a “reworked” NAFTA agreement that is signed.
John Nalivka is president of Sterling Marketing, Inc., Vale, Oregon, and Drovers economic consultant.
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