Cattle on Feed Down in Colorado
May 29, 2012
The fallback from last year’s drought is starting to hit the market, as reported in the USDA’s Cattle on Feed report released on May 18. For the first time in two years, the on-feed count was below that of the previous year.
“Cattle and calves on feed for slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 11.1 million head on May 1, 2012. The inventory was 1 percent below May 1, 2011,” according to the report.
The biggest drop was seen in the placements of new cattle in the feedyard. “Placements in feedlots during April totaled 1.52 million, 15 percent below 2011. Net placements were 1.44 million head. During April, placements of cattle and calves weighing less than 600 pounds were 355,000, 600-699 pounds were 250,000, 700-799 pounds were 380,000, and 800 pounds and greater were 536,000,” the report stated.
The number of cattle on feed in Colorado also decreased six percent compared to last year, and decreased four percent compared to the previous month. The number of placements saw the biggest drop, with a 27 percent decrease compared to last year, and a 25 percent decrease compared to the last month.
“There are a lot of things that can play into the report. I would suspect what we are seeing other than supply and demand would be that feeder cattle are at record highs, and what I suspect is that the decrease is from fewer cattle going on because of the price of feed to finish them,” said Terry Fankhauser, Executive Vice President of Colorado Cattlemen’s Association.
The price of cattle has remained high, but increasing input costs will affect feeders in the near future. “I do know that it’s not just corn, but roughage as well that has gone up. We have seen a significant price increase in roughages. The input costs are higher than they have ever been. The cost of feed, cost of energy and cost of feeder cattle is much higher. What some of those feeders paid for cattle will make it difficult to break even. Due to that fact, we might see heavier calves, to get more out of fewer animals,” he said.
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One feedyard that has managed to stay full is the Magnum Feedyard in Wiggins, Colo. “Our objective is to stay full. We probably bucked the trend a little bit, and continued to stay in the feeder or replacement cattle market. To stay full, we had to get into some geographic areas that we would not regularly participate in. An increased number of our inventory comes from areas we don’t usually draw from,” said Steve Gable, managing partner.
He continued, “I think the drop in placements is a combination of two things. In general, supplies are tight. We liquidated a substantial number of cattle last year due to the drought, and through that process we altered the marketing program for those cattle. Many producers were forced to wean early, and put cattle on feed earlier. I think we will see placements continue to drop because of that.”
To help keep themselves profitable, Magnum Feedyard has looked to alternative feedstuffs such as wheat to use in place of corn. “Our finished ration will be at least 10 percent cheaper on a 100 percent dry matter basis than it was,” Gable said.
Another way feedyards are trying to guarantee they make a profit is through risk management. “We are using more aggressive forms of risk management, such as being more disciplined in the hedges we put in place,” he said.
Fankhauser added, “I think what the report shows me is kind of what we have expected. While there is tremendous opportunity, there is also a degree of volatility. We need to grow back our lost market share due to weather conditions and feed shortages.”
The 15 percent national drop in placements can be correlated to the drought last year. “The drought moved a lot of feeder cattle out of Texas and Oklahoma, and really that drought is not over. A lot of producers are not running cattle this year to let the grass replenish. Colorado is a state that brings in more feeder cattle than it provides. The supplies in the South are more lean this year. Some of the feeders who bring cattle out of Texas or Oklahoma are finding a shortage,” said Fankhauser.
The reasons for the decline are threefold. “As expected, placements of cattle into feedlots were below a year ago during April, down 15 percent. The average of pre-report estimates indicated a 12 percent drop. The year-on-year decline was due to: 1) large numbers forced into feedlots last year because of drought; 2) huge red ink on feedlot closeouts and no opportunity in April to lock-in anything close to a breakeven sales price for purchased feeder cattle using risk-management tools; and 3) shrinking cattle supplies. Head placed in all weight categories were below a year ago, with the lightweight category (under 600-pound) down 20 percent,” according to James Robb, Center Director for the Livestock Marketing Information Center, in his In The Cattle Markets review dated May 21.
The USDA report shows that placements in Texas were down 18 percent, placements in Oklahoma were down 38 percent, placements in Kansas were down 21 percent, placements in California were down 21 percent and placements in Nebraska held even, all compared to the previous year.
Every state that feeds cattle was down in placements compared to the previous month as well, with the biggest drop in South Dakota at 29 percent. However, the state showed a three percent increase compared to last year.
In terms of the number of cattle marketed, Colorado marketed the same number of cattle compared to last year, but showed a 14 percent decrease from the previous month.
“Marketings during April were larger than pre-report estimates (including those of the LMIC), as has often been the situation in recent months. Analysts expected marketings below a year ago (down about 1.5 percent), but producers reported to USDA numbers slightly above a year ago. Marketings in the report historically track rather well with steer and heifer slaughter, after making adjustments for the number of Canadian animals imported directly for harvest. In fact, USDA figures put steer and heifer slaughter for the month of April at 4.5 percent below 2011’s,” according to Robb.
Exports remain a huge driver for the demand of U.S. beef. “The export market is critical to our marketplace here. Americans are not eating more beef every year. The major growth in consumption is outside of the U.S. borders. Right now, roughly 90 percent of our consumers are outside of our borders. I think exports absolutely help. It is probably one of the one major factors that will help revitalize the beef sector in the U.S. We have been contracting the herd for many years, so that export market should help us grow again. Most of those markets have a growing middle class, and they will eat beef,” said Fankhauser.
This decrease in supply and increase in demand generally leads to an increase in price, which consumers have already seen at the retail level. “I think we have already seen some of that in the market place where consumers are paying more than they have in the past. I don’t know if that trend will be a steep one, however. If supplies are lower, the price will be driven up, and you will see some of that in the retail side. It might be not significant though, I’m talking pennies. But we have seen an upward trend,” he said.
Although the price for cattle in the coming months cannot be predicted, the futures price does give some insight.
“In terms of futures market prices for fed cattle, the lows have most likely already been set for this year. The June contract rebounded this past week. As has been the case for some time now, steer and heifer slaughter will be smaller than a cursory view of the report indicates. Based on recent trends and the May 1 number of cattle on-feed in the 1,000 head and larger feedlots at 1 percent below a year ago, steer and heifer slaughter in several coming months down at least 3 percent would be consistent,” according to Robb.
The outlook for the cattle industry will continue to depend on drought. Although conditions have continued to improve in many areas of Texas, Oklahoma and the Northern Corn Belt, Florida, Georgia, South Carolina and Alabama are seeing worsening conditions.