Key numbers in Friday's USDA Cattle on Feed Report are friendly to both cash fed cattle and futures prices.
Based on feedlot surveys, USDA estimated feedlots with 1,000 or more head capacity placed 2.02 million cattle in August, 11% below 2011. Traders expected placements to be down about 7.3%. The August figure is the second lowest cattle placements for the month of August since the series began in 1996. The placements came in about 4 percentage points below the average trade guess, which is friendly for cattle prices.
Net placements were 1.94 million head. During August, placements of cattle and calves weighing less than 600 pounds were 482,000, 600 to 699 pounds were 385,000, 700 to 799 pounds were 475,000 and 800 pounds and greater were 660,000.
Cattle and calves on feed for slaughter market totaled 10.6 million head on Sept. 1, 2012. The inventory was 1% below September 1, 2011. Inventory is also below the average trade guess of just under the Sept 1, 2011 figure.
August fed cattle marketings totaled 1.96 million, 5% below 2011.Marketings, too, were below the average trade guess of down 1.5%.
Multiple forces drive cuts. Friday's numbers suggest the drought, smaller calf crops and huge red ink on recent feedlot closeouts are even more discouraging to cattle feeders than earlier thought.
Placements are highly seasonal and August is a normal transition month. Superimposing drought impacts and feedlot red ink inject even more uncertainty than normal.
The shrinking cow herd is one force trimming placements. Fewer cows mean fewer calves. The 2011 calf crop was down from 2010. This year's calf crop will also be smaller.
Note that comparisons to 2011 are somewhat skewed by the drought impacts in 2011. Last year, drought restricting forage supplies in the Southern Plains prematurely pushed a lot of lightweight calves onto feedlots. Cattle producers also struggled with drought this year. But in several areas 2012 conditions were actually better than last year.
The drought-induced grain price surge is also impacting the ability and willingness of feedlots to place feeders, especially lightweight calves that require more time on feed. December corn prices hovered in the $8.00 to $8.25 range for much of August, with other feeds also at all-time record highs.
Timely showers in parts of wheat grazing county could also induce some ranchers to hang onto calves a little longer.
Feedlots steadily reducing placements in recent months is slowly drawing down total inventories. Through August, year to date feedlot placements in feedlots with 1,000 or more capacity are down about 554,000 head or 3.6% from year ago levels. Lower placements and lower inventories will limit cattle availability going into the holiday season, with cattle slaughter expected to be down as much as 5% from 2011.
Seasonal placement rise ahead. In most years, August marks the beginning of a ramp-up in cattle entering feedlots with October being the peak month. In the five-year period from 2006 through 2010, monthly placements in the first seven months of the year tended to be below average and August was 13% above the average. In September and October placements were 23% and 31% over the annual average, respectively.
Last year, because of the Southern Plains drought, feedlot placements climbed earlier than normal. Still, even during last year's drought placements generally followed the normal season, including peaking in October.
An October peak is also likely this year, but at a lower level.
Lightweight calf run is underway. Much of the seasonality in placements is driven by animals under 700-pounds, almost all of which are calves. October is by far the major month when animals are placed weighing under 700-pounds.
As with overall placements, August is the first month of the calendar year that is normally above average in terms of cattle placed at relatively light weights. Relatively heavy weight cattle tend to enter feedlots year-round. For those cattle, September is the peak placement month and August is still a well above average month.