USDA estimated cattle feeders with feedlots with capacity of 1,000 or more head placed 1.876 million cattle in January. That's up 1.7% from last January and a tad bit higher than the average trade guess of up 0.3%. Those feedlots marketed 1.917 million cattle in January, 5.6% more than last January and a tad more than the average trade guess of up 4.7%.

Market likely to rapidly digest report and then refocus on trying to find more consumer buying interest in beef.

The net result is beef supply going forward will be very close to pre-report expectations. The slightly higher than expected marketings offsetting the slightly higher than expected placements could suggest immediate fed cattle supplies could be a bit smaller and supplies coming later could be a bit larger. If so, that's likely good from the standpoint that it gives time for the market to find some demand. It also provides time for lawmakers to work on budget issues, so as to remove some uncertainty from all markets, which will hopefully contribute to finding some much needed strength in consumer and packer buying interest.

Placements a bit higher than expected combined with marketings a bit higher than expected result in the Feb. 1, 2013 cattle feed inventory being nearly dead-on with trade expectations at 11.073 million head.

During January, placements of cattle and calves weighing:

Less than 600 pounds were 445,000

600 to 699 pounds were 395,000

700 to 799 pounds were 535,000

 800 pounds and greater were 501,000

Placements of 800 pounds and over cattle were up 54,000 head. The 700 to 799 pound cattle were up 10,000 from a year ago. So January continued the recent tendency of feedlots to place heavy cattle.

January 2013 had one more marketing day than in January 2012. The result is daily marketings came in very near the year ago level.

Beef supply will continue to shrink

Placements of cattle into feedlots ran below the year-earlier level in 10 months in 2012. Despite the January uptick in placements, feedlot inventories will continue to run below year-earlier levels for the foreseeable future. This implies smaller supplies of fed cattle available for marketing going into the spring, which means smaller beef supplies as grilling season heats up.

April fed cattle futures started the year about $136. They wrapped up last week about $128. Softening fed cattle prices came at a time when corn prices were advancing. That spells margin compression for feedlots.

The payroll tax cuts expired Jan. 1. Gasoline prices have ratcheted up 20% or more over the last month. Fiscal gridlock in Washington creates uncertainty in all markets.

Fundamentals suggest prices in the beef complex should still march to record high levels this year. However, the market needs to find traction from improving demand to make such an assault.

Readily available supplies of competing pork and poultry will cap beef price gains at some level.