Cattle On Feed Report from USDA

The USDA February Cattle on Feed report showed that feedlot inventories on February 1 were 11.3 million head, down 5.6 percent from last year. January placements were 1.858 million head, up 4 percent from last year and January marketings were 1.737 million head, down 6 percent from one year ago. Both the placement and marketings numbers were slightly higher than expected and the resulting on-feed total was in line with pre-report estimates.

At face value, the decrease in feedlot inventories from last year ought to be bullish and yet fed cattle prices are currently $11 - $12/cwt. lower than this time last year. While fed cattle supplies do not seem to be at burdensome levels, clearly current production is more than adequate for the current level of demand. Since about mid-January the impact of the recession has been increasingly apparent with almost daily indications of demand meltdown and, unfortunately, no end in sight at the moment. Boxed beef prices have dropped $7/cwt. since mid-January. The decline has been larger for Choice relative to Select meat, a further indication of weak demand, with the result that the Choice-Select spread has been less than $1/cwt. several days recently.

The relatively large January placement value was not indicative of strong feeder demand as much as it was the result of feeder cattle carried over from last fall that needed to be moved combined with increasingly dry conditions in some regions, the Southern Plains in particular. We have continued to see relatively large Oklahoma auction runs in February as winter forage and wheat pasture supplies dwindled. We may see a relatively large placement level in February but there will be less feeder cattle movement in March and April as a result. The slight uptick in the estimated January 1 feeder supplies was a short run timing issue as a result of feeder cattle being carried over from November and December into January and February. Feeder supplies will remain tight, particularly as we move past the first quarter of the year.

January feedlot marketings were down from last year but there was one less business day this year compared to 2008. Marketings as a percent of the on-feed total were actually slightly higher than one year ago. There is no strong indication that feedlot supply is a problem or the major cause of the current free fall in fed cattle prices. Some have worried that large carcass weights indicate that feedlots are backed up but these carcass weights are mostly a function of heavier placement weights and good feedlot performance with little winter weather impact on feedlots so far.

The problem is not that we are overfeeding cattle (or feeding too many cattle, in general). The fact is that the recession is severe enough to be impacting food demand generally and beef demand in particular in a much more severe manner than was expected as little as a month ago. Until there are solid signs that macroeconomic confidence is rebuilding, there is little room for optimism in cattle prices. The good news is that when such rebuilding takes place, the supply fundamentals should ensure that beef and cattle prices will respond very quickly.

Source: Derrell S. Peel, OSU Extension Livestock Marketing Specialist