Cheaper feed unexpectedly draws cattle into U.S. feedlots

Chicago | Reuters — More young cattle than expected entered U.S. feedlots in December as cheaper feed gave feedyard operators a chance to break even or turn a slight profit, analysts and economists said following Friday’s U.S. government cattle report.

The U.S. Department of Agriculture showed December placements at 1.681 million head, up one per cent from 1.664 million a year earlier.

Analysts, on average, expected a 2.3 per cent decrease, citing healthy grazing pastures that allowed ranchers to fatten cattle outside of feedyards at reduced costs.

Anxious to cash in on the seasonal upswing in prices for slaughter-ready cattle, ranchers moved animals to feedlots where they dined on less-costly feed before heading to packers such as Tyson Foods and Cargill.

“Corn became cheap enough to bring in cattle, and hay supplies increased substantially at lower costs,” said Dan Vaught, economist with Doane Advisory Services in St. Louis.

Don Roose, president of Iowa-based U.S. Commodities said: “The northern Corn Belt placed cattle pretty aggressively. That really was the tie breaker.”

The bigger placements were largely centered around the U.S. corn belt, which suggests more affordable feed, he said.

Feedlots in recent months were faced with record-high costs for scarce lightweight calves that eroded their margins. In October, feedlots profits briefly surfaced in the black for the first time in 29 months following last fall’s record corn harvest.

Feedyards in December averaged a loss of about $68 per head on cattle sold to meat companies, compared with a $26 per head loss the month before, according to the Colorado-based Livestock Marketing Information Center (all figures US$).

“Feedlot breakevens began to improve at a time when they need to fill excess capacity. When people saw the slightest hint of profitability, they jumped at it and put some cattle on feed,” said Elaine Johnson, analyst with CattleHedging.com in Denver.

USDA put the feedlot cattle supply as of Jan. 1 at 10.593 million head, down 5.0 percent from a year earlier of 11.193 million. Analysts polled by Reuters, on average, expected a drop of 6.2 per cent.

Larger-than-anticipated cattle supplies in January were tied to increased placements in December, analysts said.

The government said the number of cattle sold to packers, or marketings, in December was down one per cent from a year earlier, to 1.736 million head.

Analysts’ looked for an increase of two per cent from 1.745 million last year due to one more day to slaughter cattle in December 2013 than a year earlier.

“The marketing result may have had more to do with wintry weather last month that slowed cattle weight gains in feedlots, which delayed their movement to packing plants,” said Vaught.

Analysts are expecting Chicago Mercantile Exchange live cattle futures to open 0.3 to 0.6 cent per pound lower on Monday based on Friday’s USDA report and lower wholesale beef prices.

On Friday, CME live cattle for February delivery settled 0.525 cent per lb lower at 143.400 cents, and April closed down 0.5 cent, to 140.1 cents.

“You’ve got more cattle around than you thought after the first of the year, which could pressure the nearby contracts,” said Roose.

— Theopolis Waters reports on livestock futures markets for Reuters from Chicago. Additional reporting for Reuters by Meredith Davis.

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