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Incredible Shrinking Feedlot Inventory Is Bullish for Cattle Prices

Based on survey responses from feedlots with more than 1,000 head capacity, USDA estimated cattle on feed Jan. 1, 2013 totaled 11.861 million head. That's 94.4% of a year ago vs. the average trade guess of 95.6% of the Jan. 1, 2012 figure.

Placements in feedlots during December totaled 1.664 million, 99.4% of the December 2011 value. USDA's estimate is 4.3% percentage points below the average trade guess of 104.1% of the year ago figure.

December marketings of 1.745 million cattle were 98.3% of December 2011 marketings vs. the average trade guess of 93.2%.

The feedlot inventory included 7.05 million steers and steer calves, down 3% from the previous year. This group accounted for 63% of the total inventory. Heifers and heifer calves accounted for 4.07 million head, down 9% from 2012.

Sharply lower than expected placements raise two possibilities. But first, the background. Before the report, trade chatter indicated lack of hoped for moisture had resulted in poor wheat pastures, causing traders to think more young cattle had been forced into feed yards.

The lower than expected placements could suggest that wheat pastures are in better shape than generally had been perceived. If so, more cattle are on pastures. They'll come into feedlots on a more normal schedule. As a result they'll go to the fed cattle market somewhat later. That would be a bit friendly for near-term beef prices, but a bit negative for summer.

The placement shortfall could also suggest the feeder cattle flat out do not exist. That would be overall bullish. Traders will get more clues Feb. 1 when USDA releases its annual head count in the Cattle Report.

The data indicate U.S. feedlots with capacities of over 1,000 head placed a total of 1.490 million fewer cattle in 2012 than in 2011. Most of the reduction, or 1.352 million head, came in July through December.

Net placements were 1.59 million head. During December, placements of cattle and calves weighing less than 600 pounds were 495,000; 600-699 pounds were 415,000; 700-799 pounds were 379,000; and 800 pounds and greater were 375,000.