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No Surprises in Friday's Cattle on Feed Report

Cattle and calves on feed for slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 11.254 million head on Nov. 1, 2012. The inventory was 5% below Nov. 1, 2011 and 17,000 below the average trade guess in advance of the report.

Placements in feedlots during October totaled 2.180 million, 13% below 2011 and just 1,000 cattle more than the average trade guess in advance of the report. This is the lowest cattle placements for the month of October since the series began in 1996. Net placements were 2.10 million head.

During October, placements of cattle and calves weighing less than 600 pounds were 680,000, 600 to 699 pounds were 505,000, 700 to 799 pounds were 435,000 and 800 pounds and greater were 560,000.

Other disappearance totaled 78,000 during October, 20% below 2011.

Record high spring prices likely. The rapid decline in placements points to a sharp reduction in second quarter 2013 cattle slaughter at the same time demand for grilling season hits its peak.

Sky rocketing feed costs have slashed feeder cattle placements. Since the corn rally began in June, placements have plummeted almost 1.3 million head compared to the previous year. Last year was not normal because severe drought in the Southern Plains pushed calves off pastures early.

 Southern Plains pastures were somewhat better in 2012. Placements of light cattle from that region were limited. Still, this year's overall grazing conditions were even worse than in 2011.

Cattle feeders and their nutritionists are adept at formulating least cost rations. That's a difficult challenge when prices of all feedstuffs are rising rapidly.

Feedlots are also adept at calculating breakevens and figuring maximum prices they can pay for cattle to place. The result—sky rocketing costs drove down feeder cattle prices.

The other key link is fed cattle prices. Cow-calf producers would not have faced so much pressure on calf prices had feedyards been able to extract more money from the fed cattle market. Over the last 8 months the Choice cutout has made three assaults on the $200 mark, yet failed to punch through. One factor is sluggish consumer income growth. Another is relatively cheaper priced pork.

Everybody in the supply chain expects higher beef and cattle prices ahead. Producers at all levels want to own animals as long as they can, provided they can find something to feed them. That all contributed to low placements from an ever shrinking calf crop.