Update: See the December, 2014, USDA Cattle on Feed Report recap
Key numbers in Friday's USDA Cattle on Feed Report came in on the bearish side of neutral. However, before construing the report as bearish, recognize that the on-feed inventory remains historically low. October placements were the second lowest since the series began in 1996. October marketings were the lowest since the series began.
Cattle and calves on feed for slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 10.633 million head on Nov. 1, 2014. The inventory was just slightly above Nov. 1, 2013 and just a tad higher than the average trade guess.
Placements in feedlots during October totaled 2.357 million, down 31,000 or about 1% below 2013. Traders expected placements to be down close to 4%. Net placements were 2.26 million head. During October, placements of cattle and calves weighing less than 600 pounds were 690,000, 600 to 699 pounds were 570,000, 700 to 799 pounds were 462,000 and 800 pounds and greater were 635,000. The lower than expected placements could actually be constructive if the reason for the drop is that feeder cattle flat out are not available.
October fed cattle marketings totaled 1.685 million, 8% below 2013 and a tad below the average trade guess of down 6.9%.
Other disappearance totaled 97,000 during October, 28% above 2013. Some of the extra disappearance may be cows or heifers in feed yards that went back to cow herds.
No price relief likely for consumers on beef soon. Even though the Nov. 1 feedlot inventory was up a tad from a year ago, slaughter going forward will drop. Slipping spring and summer feed prices lured feedlots to place lighter cattle. Cattle placed light spend more time in feedyards. They get counted on more USDA Cattle on Feed Reports thereby inflating the current inventory relative to slaughter cattle flow going forward. Plus cow-calf producers putting more heifers in breeding herd further restrict feeder cattle supplies.
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Feedlots can produce more beef tonnage by feeding to heavier weights—and they are. But packing on more pounds also slows the flow of cattle to slaughter. The slow flow has forced packers to bid up cash prices to get cattle to meet commitments. One result has been dismal estimated packer margins.
Even if fed cattle supplies justify lower fed cattle prices, packers would prefer to recover a bit of margin rather than pass cost savings on to consumers.
The current market may not be the main concern for packers, however.
"The January to March period may be more problematic, as retail demand for beef improves after the holidays," notes Altin Kalo, Steiner Consulting Group, Manchester, NH. "Consumers will be looking for inexpensive beef (ground, rounds and chucks). Finding enough cattle to fill orders for regular customers then will be the real challenge."
Supplies of competing meats are rising. Hog producers are expanding. USDA projects first quarter pork production up 1% from 2014. Third quarter pork supply could be up 7% on cyclical expansion. A year ago, porcine epidemic diarrhea virus wreaked havoc in sow units. Baby pig death losses surged as cold, damp winter weather set in. Pork supply could be up quite a bit if new PEDV vaccines and better management curtail this winter's PEDV losses.
So far, broiler expansion has been relatively anemic given that high pork and beef prices create a price umbrella under which broilers can expand. In 2008, sharply higher feed costs created severe financial stress in the broiler industry. That stress resulted in the bankruptcy of industry giant, Pilgrim's Pride. Trade chatter indicates that remaining participants worked to wring every possible inefficiency out of broiler production. That included scaling back breeding flocks, which constrained expansion pace. Now broilers are catching up. USDA projects solid 3% growth in broiler output next year.
More meat is coming for consumers. But they will still have to pay good money to tease their palates with beef. Consumers shifting to alternative meats may eventually create a bit of drag on beef prices.