October 24, 2006

 

US cattle-on-feed numbers threatened as feed prices rise

 

 

In what analysts see as an ominous sign of things to come, the rise of feed prices is clashing with a period when US cattle on feed is reaching its highest in ten years.

 

The Oct 1, 2006 inventory is the largest since the current records began in 1996.

 

Feedlot managers placed large numbers of calves this summer and early fall. Now, feed prices have moved much higher, raising costs of production.

 

However, the higher feed prices did put a stop to the growing numbers of cattle on feed as the latest USDA Cattle on Feed report in October showed placements were down five percent.

 

More young cattle were put for placements in September as calves under 600 pounds was up 28 percent, while placements of cattle over 600 pounds were down 16 percent.

 

However, whether the slowdown came too late was a matter of debate as feed prices only started rising in October.

 

Most of the corn price action came in October, when December corn futures crossed US$3. The impact on the cattle industry can be seen more completely by looking at the impacts on cattle prices from mid-September to the current time period.

 

The impact of higher feed prices is felt most keenly on feeder cattle and calf prices, where prices of these cattle have declined while future feed prices have risen.

 

This meant feedlot managers who paid high prices for calves and did not protect their feed input costs would bear the brunt of the losses, followed by the cow-calf operations. Lower calf prices can be expected as long as feed prices stay high, or until distillers' grain use can help bear some of the feeding costs.

 

The impact may be large as the higher feed prices lowered calf prices and the cattle industry stands to lose US$1.9 billion in the process.

 

To stem losses, industry watchers are recommending greater use of distillers' grains in rations.

 

As feed prices move higher, market weights would likely drop. Also, fewer cattle would be sent to feedlots, and on-feed numbers would drop, meaning there would be large excess capacity in feedlots for the near future.