Latest Cattle on Feed Report Less Grinchish Than it Appears

The latest Cattle on Feed report pegged the December 1 feedlot inventory at 11.512 million head, 108 percent of last year. This is an additional 864,000 head in feedlots compared to December 2016. This is also the largest monthly on-feed total since March, 2012 and the highest December feedlot inventory since 2011. Among the three largest cattle feeding states, the December 1 feedlot inventory in Texas and Nebraska were both up 9 percent year over year, while Kansas was 104 percent of last year. Number four Colorado was also 109 percent of one year ago while fifth largest Iowa was 117 percent of last year. November feedlot placements were up 13.8 percent year over year, once again sharply higher than expected. Marketings in November were about as expected at 103.1 percent of one year ago. 

The jump in November placements will clearly be viewed as bearish but a couple of points must be remembered. First, feedlots do not create cattle supply with placements; they can only change the timing a bit. Larger feeder supplies (and feedlot placements) in 2017 were expected given herd growth in 2016. The 2017 calf crop was likely up close to three percent in 2017; roughly a million head more calves.  This leads to the second point: recent large placements means that feedlots are pulling cattle forward by placing feeders at a faster rate than the growth in feeder supply. The November placements included a 6.9 percent increase in feeders over 700 pounds; close to expectations. The surprise came from a 20.3 percent increase in placements under 700 pounds. Indeed, placements under 600 pounds were up 29.8 percent year over year.  Lightweight feeders placed now will not be available for placement later.

Feedlots are enjoying favorable cost of gain and generally have an incentive to load feedlots up to capacity.  A regional look at November placements is even more insightful. Texas placements were 23.1 percent higher than one year ago with placements under 600 pounds up 71.4 percent year over year. This reflects late development of wheat pasture in the Southern Plains this fall. Feedlots took advantage of poor stocker conditions and moved calves into feedlots earlier than is typical. In fact, Texas placements under 600 pounds, represented 56.3 percent of all placements under 600 pounds and 29.3 percent of the total increase in placements.  In total, Texas accounted for 35.2 percent of increased November placements while Kansas accounted for 19.5 percent; Nebraska, 13.7 percent and Colorado, 3.9 percent. 

The implications of this report may not be as bearish as it seems. These lightweight placements will be marketed later and are not bunched up with earlier placements. Lightweight placements tend to get spread out more over time and winter weather is likely to further spread cattle out over the next few months. Lightweight placements may help moderate beef production as well. Feedlot data shows that lighter placement weights result in lighter finished weight, and thus lighter carcass weights.  It’s not a one for one relationship but, on average, feeders placed 200 pounds lighter would be expected to finish about 100 pounds lighter.  Winter weather could further impact finished weights on feedlot cattle and especially these lightweight feeders.

Wishing everyone a very Merry Christmas!