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CME: Notable Increase Expected On Total Feed Supply

20 November 2019

US - USDA will publish on Friday the results of its monthly survey of feedlots with +1000 head capacity, reports Steiner Consulting Group, DLR Division, Inc.

Analysts surveyed by Urner Barry ahead of the report indicated that they expect to see a notable increase in the total on feed supply, a function of sharply higher placements during October and a decline in the number of cattle marketed last month.

Below are some of our thoughts on the key numbers:

Placements: Even as the range of placement estimates appears to be quite large, for the most part most analysts expect placements to be significantly higher than a year ago. On average analysts think placements in October were 12.2 percent higher than last year. There’s a number of factors that argue for large placements last month and some anecdotal evidence and regional surveys also tend to support that conclusion.

Feedlot margins improved in October as fed cattle prices rallied while feed costs were steady to lower. April fed cattle futures on 1 October settled at $118.55/cwt. By the end of October, April was trading at $123.95, a 4.5 percent gain. December corn at the start of October was $3.9250 per bushel and by the end of the month it settled at $3.90.

Feeder cattle gains last month were similar to fed cattle. October placements should also be viewed in the context of placements in recent months. Good pasture conditions during the summer months and the plant fire in August significantly reduced placements during the summer months. For the period May-Aug feedlots placed 332,000 head of cattle less than the same period a year ago.

September placements were only 42,000 head higher than last year and the general expectation is that the turn in the weather combined with a much improved margin outlook resulted in a significant increase in placement activity. Feeder cattle sales data also suggests higher placements.

While overall auction sales were down in October, sales of +600 lb. cattle at auction during the period 28 Sep - 1 Nov were 23 percent higher than the previous year. Overall sales of +600 lb. feeder cattle during this period (includes direct/video/internet) were 17.9 percent higher than last year.

While the correlation between feeder sales and placements is not perfect, it is one indicator that helps inform both direction and magnitude of placements for the month. One factor that may have negatively affected October placements were feeder cattle imports.

During the four October weeks, imports of feeder cattle from Mexico were down 4,737 head or 5.4 percent compared to a year ago. Imports of feeder cattle from Canada were 7,116 head or 50 percent lower than the same period a year ago.

Marketings: For the most part analysts agree that marketings in October were slightly lower than a year ago. This is because we know what fed cattle slaughter was last month and there is generally very good agreement between feedlot marketings and fed slaughter numbers.

According to our calculations fed cattle slaughter in October was 0.7 percent lower than a year ago compared to the average of analyst estimates looking for a 0.4 percent decline - an immaterial difference.

Total supply on feed: On average analysts expect the total supply on feed as of 1 November to be 1.3 percent higher than a year ago. If correct, this would be quite a turnaround from last month when on feed inventory was estimated to be 1.1 percent lower than the previous year. Adding some 2.5 million cattle while subtracting 1.9 million can make for big swings in inventory.

Using analyst averages, we calculate the supply of +120 day cattle on 1 Nov at 3.901 million head, 2 percent higher than a year ago. The inventory of +90 day cattle is estimated at 5.535 million head, 0.6 percent higher than last year. There is currently a minimal spread between Feb and Apr cattle, reflecting in part recent placement trends and winter weather risk.


Daily Livestock Report - Copyright © 2008 CME. All rights reserved.


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