The number of cattle being fattened for the dining table on U.S. feedlots fell to the lowest level in seven years, but higher beef prices are still unlikely amid the sluggish economy, analysts said following a U.S. cattle-on-feed report Jan. 22.
The number of cattle placed at these feedlots in December fell to an 11-year low due to winter storms, fewer available feeder cattle and high feed costs.
“Placements during December were at an 11-year low and that helped on-feed (supply) drop to a seven-year low,” said Rich Nelson, livestock analyst with Allendale Inc.
“There were smaller supplies available of calves and feeders after we placed a good chunk of them (at feedlots) between July and October. “And secondly, corn costs were rallying through much of the month,” Nelson said.
Poor weather conditions would raise the cost of feeding cattle. With the economy weak, some feedlots were unable to obtain financial backing, while high U.S. unemployment kept beef demand down.
“We had two significant storms going on during December and we have not seen better beef demand show up yet,” Nelson said.
The U.S. Department of Agriculture reported the on-feed cattle supplies at major feedlots as of Jan. 1 at about 11 million head, 98 per cent of last year’s supplies. Traders expectations averaged 98.4 per cent, in a range of 97 to 99.3 per cent.
The on-feed number was the lowest Jan. 1 number since supplies were at 10.658 million head in 2003.
PLACEMENTS BELOW ESTIMATES
Placements of cattle onto feed during December, one of the most watched parts of any Cattle on Feed Report, showed numbers at 94 per cent of last year. This compared with an average trade estimate of 95 per cent.
December placements were at their lowest level for the month since 1998 when placements totaled 1.512 million head.
Another part of the report that analysts liked was the marketing number, which exceeded last year’s level. This showed feedlots were willing to move cattle to market even though the prices were not as high as needed to bring profits.
“We had a report that is fundamentally positive to the front part of the market because marketings were more aggressive than we thought,” said Don Roose, president of U.S. Commodities Inc.
But slow demand for beef will still limit any gain in futures. Beef prices have started to slip again after rising to a seven-month high early in the week.
“The beef market is going to continue to weaken regardless of what this report shows, and that is the No. 1 factor on the board right now,” said Dennis Smith, broker with Archer Financial in Chicago. “There is nothing extremely fancy in this report to drive the market sharply higher.”