June 22, 2011

The number of cattle sent to feedlots for fattening is poised to drop sharply in coming months because of widening beef producer losses and smaller supplies of young animals from drought-affected areas of the Southern U.S. Plains, livestock analyst Ryan Turner said.

 

Cattle feedlot placements, an indication of future beef supplies, may drop as much as 20 percent this month compared with June 2010, Turner said, citing an industry source. Turner, a risk management consultant with INTL FCStone, spoke June 16 at his company’s annual market outlook conference in Chicago.

For much of the past year, high cattle prices fueled beef producers’ profit and contributed to rising feedlot placements since last summer. But that trend may reverse, Turner said. Cattle prices have tumbled from record highs in April while corn soared to all-time highs near $8 a bushel, sending feedlot margins into the red.

“The business of feeding cattle is not good,” Turner said. Based on futures prices, many feedlots are currently losing about $100 per animal, he said. As recently as the beginning of May, cattle feeders were making more than $137 a head, according to Sterling Marketing, Inc.

In trading June 16, CME Group live cattle futures for delivery this month rose 3 cents to $1.072 a pound. While the market has recovered part of its recent slide, futures are still down 13 percent from an all-time high of $1.22875 April 5.

Severe drought in the Southern Plains also contributed to rising placements, Turner said, as ranchers, lacking sufficient pasture for grazing, sold young cattle to feedlots earlier than normal. But the numbers of young animals from drought areas appears about tapped out, he said.

There are indications “that the drought-affected cattle have moved” to feedlots, Turner said in an interview following his presentation. “The feeder cattle supply is going to be hard to come by for the next year.”

During April, about 1.8 million head of cattle were sent to feedlots, up 10 percent from the same month in 2010, according to the U.S. Department of Agriculture. That was the eighth year-over-year increase in the previous nine months.

The USDA is scheduled to release its monthly feedlot update for May at 2 p.m. Central time June 17. Feedlot placements during May are expected to have fallen about 7.5 percent from a year earlier, according to a Dow Jones Newswires survey of analysts.

Declining feedlot numbers likely will lead to tighter beef supplies, Turner said, pushing supermarket prices for steaks, burgers and other cuts even higher, assuming the economy improves.

U.S. retail beef prices rose by an average of 10 percent a month this year through May, compared with the same month in 2010, according to Labor Department data.

“If we do have some demand come back into the marketplace, prices are going to explode” higher, Turner said. However, beef demand appears to have weakened recently amid expensive gasoline and high unemployment, he added.

“No doubt, at $4 gasoline, there’s less disposable income,” Turner said.

Source: Drovers CattleNetwork