Dr. Derrell Peel Calms the Waters After Latest Cattle on Feed Report Takes Industry by SurpriseMon, 30 Jan 2017 12:16:01 CST
The US Department of Agriculture surprised the industry last week after reporting placements were up nearly double what was expected in Friday’s Cattle on Feed report for the month of January. According to Oklahoma State University’s Extension Livestock Market Economist Dr. Derrell Peel, the market may have actually been trying to send signals to this effect in the feeder cattle complex. Radio Oklahoma Ag Network Farm Director Ron Hays caught up with Dr. Peel for his explanation.
“Clearly there was some demand for those cattle and we see that reflected here in the number of cattle it moved in the feedlot,” Peel observed, referencing data points from the 4th Quarter of 2016. “Some of it is month-to-month timing and you have to be a little careful with these things not to read too much into any one month because occasionally it’s just sort of lumpiness and we smooth it out over time.”
According to Dr. Peel’s summary the report showed feed inventories just fractionally higher, at 0.3 percent compared to a year ago, with placements during the month of December up 17.6 percent and marketings at an increase of 6.8 percent. And while the placement figures may be alarming, Peel says when all these numbers are put into the equation, the resulting translation is a bit more uplifting.
“We’re moving more cattle through feedlots, so the inventory is not bigger; it’s not equal to a year ago after being down for a couple months,” Peel reassured. “And even though the placements were bigger on this one month in total, what we’ve done for several months now is actually marketed cattle faster than we’ve placed them.”
Dr. Peel explained his thoughts in further detail in his article this week from the Cow/Calf Corner weekly newsletter, as follows.
“Strong feedlot demand for feeder cattle helps explain the strong feeder price rally at the end of 2016. December feedlot placements were 117.6 percent of last year, significantly larger than expected. This follows a 15 percent year over year increase in placements in November. December feedlot marketings were 106.8 percent of one year ago; close to expectations. The January 1 on-feed inventory was fractionally above one year ago at 100.3 percent of last year.
“For all of 2016, feedlot placements were up 5.8 percent with fourth quarter placements up a strong 7.3 percent year over year. However, marketings increased even more sharply with twelve month total marketings up 6.2 percent year over year. Fourth quarter marketings were up an impressive 9.2 percent from 2015 levels.
“December placements were up the most in the southern plains with Texas up 23 percent and Oklahoma up 54 percent year over year. Strong monthly placements were noted in most major feeding states including Nebraska (up 15 percent); Kansas (up 18 percent); Colorado (up 13 percent; and Iowa (up 16 percent), all compared to one year ago. Lower placements were noted in Washington, Idaho and South Dakota where winter weather likely was a factor in restricting December placements.
“December placements were concentrated at lighter weights. Placements weighing 700-800 pounds were up 26.1 percent year over year and placements weighing 600-700 pounds were up 26.8 percent compared to last year. Under 600 pound placements were up 16.0 percent while over 800 pound placements were up only 4.5 percent compared to one year ago. Most of the increased placements will be marketed in the last half of the second quarter and in the third quarter of 2017. There is ample opportunity yet for winter weather to impact production and further delay the timing of these cattle.
“Lighter weight December placements may be due in part to the likelihood that heifers accounted for more relatively more placements compared to steers. The quarterly breakdown of steers and heifers on feed in the latest report showed that the January 1 inventory of steers on feed were 2.0 percent less than last year while the inventory of heifers on feed was 5.0 percent larger year over year. This reflects both aggressive steer marketing in 2016 as well as a slowdown in heifer retention last year. Steer slaughter was up 7.6 percent year over year in 2016 and was up 8.7 percent in the fourth quarter of the year. Heifers on feed January 1 were up despite an increase in heifer slaughter in 2016, up 4.7 percent for the year, and up a whopping 11.4 percent in the fourth quarter.
“Strong fed cattle prices out of the chute in 2017 are in part due to aggressive fed marketing at the end of 2016, compounded by winter weather. Current fed cattle prices are a bit stronger than expected and may be the seasonal high prices coming a bit earlier than expected. The larger placements imply that supply pressure will build into the middle and later part of the year. The challenge will be for feedlots to continue marketing aggressively to minimize the supply pressure while we see how beef demand adjusts to continued retail price decreases in the coming months.”
You can listen to Dr. Peel’s complete analysis of the numbers in Friday’s Cattle on Feed report released by USDA, in his full conversation with Hays, on today’s Beef Buzz.
The Beef Buzz is a regular feature heard on radio stations around the region on the Radio Oklahoma Network and is a regular audio feature found on this website as well. Click on the LISTEN BAR below for today's show and check out our archives for older Beef Buzz shows covering the gamut of the beef cattle industry today.
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