U.S. Feedlot Cattle Supply At Three-Year High

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U.S. cattle supply at feedlots swelled to the largest in three years in February as high prices fuelled a rush to fatten them for slaughter.

But this surge could be a precursor of a decline in supply that could soon mean higher beef prices at stores and restaurants, analysts said after a U.S. government report.

The U.S. Agriculture Department on Mar. 18 said there were nearly 11.4 million cattle in feedlots on March 1, or 105 per cent of a year ago and the largest for that date since 2008.

The five per cent increase was due to profitable cattle prices, which had feedlots filling cattle pens. But replacement cattle numbers needed to keep those pens full are rapidly shrinking, meaning there will be fewer slaughter cattle later.

“We are going to see that feedlot supply drop to 100 per cent (of a year ago) and then below 100 per cent later this year,” said Ron Plain, University of Missouri agricultural economist.

When that supply shrinks, beef production will go down, and beef prices will go up.

“The beef supply is really going to tighten up in the second half of 2011 and that should put some pretty pricey beef in the meat case,” said Plain.

Retail beef prices already are record high, with USDA reporting the average February price at a record $4.62 a lb.

Smaller supply anticipated

Fewer cattle and higher prices have been anticipated. Cattle supplies are declining because the U.S. herd is the smallest in more than 50 years as the recession, high feed prices, and lately record-high prices for young cattle discouraged ranchers from retaining breeding stock.

The report signalled there will be smaller supplies ahead. It showed the number of cattle added to feedlots in February, called placements, down about one per cent from a year ago. After the report, analysts said those placements will get even smaller. “The key point is that placements dipped under last year and they will stay under last year’s levels for at least the next six months,” said Rich Nelson, analyst at Allendale Inc. “That’s long-term bullish for the October, certainly the December and all of the 2012 contracts,” he said of the Chicago cattle futures.

The report also showed feedlots sold nearly 1.8 million cattle to slaughterhouses last month, up 4.5 per cent from the year earlier pace and slightly more than expected.

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