The parade of cattle into feedlots is finally slowing down. October marked the second consecutive month in which U.S. cattle placements into feedlots with at least 1,000 head of capacity were lower than the previous year. In fact, year-to-date placements for the first 10 months of 2018 are slightly below the total amassed through October 2017.
The duration and intensity of the latest rise in cattle placements has surpassed other recent periods of growing supplies. When considering a six-month running total of placements, 23 consecutive months from May 2016 to March 2018 recorded at least a 300,000 head gain relative to the previous year, with the average rise in that period over 750,000 head. Over the past 15 years, only one period exhibited even half of the duration of this level of growth, the twelve months from May 2010 to April 2011.
While it remains to be seen just how much recent reduced placements were due to balancing out what were elevated placements of cattle this summer when dry weather forced many animals on feed earlier than would have otherwise been the case, the expectation for the next couple of years is that beef cow numbers will stabilize or even decline, which will lead to smaller calf crops and a smaller pool of calves in the country.
Cattle on feed supplies in large feedlots are expected to remain near or marginally above year ago levels for much of 2019, extending a streak that has already reached 23 months.
The supply situation for the next two years will become clearer with the release of the annual USDA Cattle report in late January. The report will provide information about total cattle on feed inventories, not just those in feedlots with at least 1,000-head-capacity. Data from Iowa suggests that animals in these smaller feedlots are well below where they were a year ago in recent months, even as the supply in larger feedlots is up.
If we have passed the peak period for calf supplies in this cattle cycle, it is amazing to consider how well feeder prices have held up. The 600 to 650-pound Oklahoma City feeder steer price will average near $1.60 per pound in 2018, preserving the lowest annual average price since 2011 above $1.50 per pound. This is higher than any annual feeder steer price recorded prior to 2012.
To maintain historically high feeder prices during this portion of the cattle cycle speaks to the strength of beef demand, both in the U.S. and among international consumers.
These calf prices have kept many cow-calf producers from the negative returns typically experienced with peak cattle supplies and will likely moderate the downturn in beef cow numbers expected in the next few years. This should keep prices from sharply increasing as was the case in 2014 but will result in growing profitability for calf producers in the medium term.
As is always the case, demand strength will play a leading role in price expectations for the next few months. But know that the supply portion of the balance sheet is likely to switch over soon to provide a boost to prices instead of a drag.
Brown is a livestock economist with the University of Missouri. He grew up on a diversified farm in northwest Missouri.