April 21, 2008

 

Shifts in US feedlot placements forecast not to affect cattle prices

 

Even as high feed costs accelerate losses for cattle feeders, shifts in feedlot placements shouldn't be extreme and likely will not burden prices, market analysts said.

 

Losses are heavy across the entire industry, but could be especially hard on the less-well-capitalized small lots, the analysts said.

 

Small-time feeders, those who have fewer than 1,000 head, have an even harder time stomaching US$6-a-bushel corn costs than the larger operations. Some industry analysts theorised that cattle from these operations would be destined for the larger feedlots and thus be counted by the USDA's monthly cattle-on-feed reports. Those reports only track lots with a capacity of more than 1,000 head.

 

Since the cattle-on-feed reports don't track movements of animals into smaller feedlots, it might skew to the upside the size of placements into larger feedlots when in reality the total US herd size hadn't changed.

 

Such an assumption could mean that slaughter rates in future months could be lower than implied by previous placement data.

 

Ron Plain, agricultural economist at the University of Missouri, said the theory presents "a very logical scenario," although it wouldn't alter the actual number on feed, the perception of on-feed volumes could be altered.

 

At one time, many farmer-feeders were able at times to add value to their corn by feeding it to cattle and selling the cattle, Plain said. The higher cost of corn has changed that.

 

Many farmer-feeders could decide to leave or reduce feeding, and in large enough numbers, such a move could be significant, Plain said.

 

The January 1, cattle inventory report showed a total of 14.3 million head on feed, while the January 1, cattle-on-feed report showed 12.1 million in feedlots of 1,000 head or more. This means about 15.5 percent of on-feed cattle were not in the bigger feedlots, Plain said.

 

If a third of those feeders choose to exit, about 754,800 head could be assumed to be shifted out of farmer-feeder lots, Plain said. This might be enough to swell the USDA-counted placement figures and alter trader perceptions of the number coming for slaughter in coming months.

 

However, not everybody sees it as a significant issue. David Hales, market analyst at Hales Cattle Letter, questioned the accuracy of the USDA January 1 numbers, doubting there were two million head of cattle being fed in lots of 1,000 or fewer head.

 

Robin Fuller, president and market consultant at Tallgrass Consulting, said a shift in feeder cattle from smaller, farmer-owned feedlots to the open market would depress feeder cattle prices and alert the industry that such a move was taking place.

 

"So it will show up and won't catch the industry off-guard," Fuller said.

 

She even doubted there would be enough cattle swinging from smaller to larger feedlots to make a difference at the current trading range for fed cattle. If fed cattle prices got low enough, a shift could take place, she said, but it's unlikely.