Seasonal Patterns Suggest Cattle Supplies Will Shrink in Late 2016

Posted on 03/09/2017 10:21 AM

 

To those who don't actually look very closely at the raw numbers of cattle entering and exiting feedlots, it's probably easy to assume the ebb and flow of animals in lots is a straightforward proposition. That is, it is generally known that feeder cattle placed in lots generally take four to five months to grow to marketing weight and promptly exit the lot on their way to the packing plant. However, this general pattern obscures several seasonal variables, as well as those for the individual steers, heifers and calves that are involved in the process. Moreover, USDA formerly counted the cows that are also placed in lots, but stopped doing so in early 2013.

cattle1_sept82016"The chart above gives a much better idea of the flow of animals through feedlots. The most outstanding feature of the annual process is the seasonal surge in the monthly placement rate from spring lows to autumn highs. The other factor that jumps out is the lack of a corresponding leap in marketings. Feedlot sales clearly increase each spring, but the rise falls far short of the amplitude of the placement surge.

Another, less obvious, indication on the chart is the time span between the October placement peak and the usual spring high in marketings. Most yearlings placed in feedyards will normally exit four to five months later. A regression analysis between monthly placements and marketings yields a best fit at five months. But the interval between the October placement peak and the May-June marketings high is seven to eight months. This disparity reflects the large number of calves entering feedlots during the September-November period. Those younger animals apparently take two to three months longer to finish than do their elders. This phenomenon also explains the annual low in slaughter weights posted during late spring, as well as the tendency for the spread between Choice and Select cutout values to reach its widest at that same time. This reflects the fact that most 'calf fed' cattle never grade higher than select at slaughter.

cattle2_sept82016Another less obvious fact is the strong correlation between monthly marketings totals and the number of workdays each month. This is one reason why livestock analysts are routinely able to forecast the marketings figure on the monthly Cattle on Feed Report with considerable accuracy. Given the implied fluctuation in the monthly totals due to calendar differences, the chart above looks at feedlot marketings and placements on a 'per workday' basis. The placement rate still reflects a major seasonal surge during fall, but it also generates a much better defined seasonal pattern in marketings. It also highlights the downtrend in placements and marketings through 2015, whereas the 2016 totals for both placements and marketings have clearly moved higher.

The chart below depicts the five-year average for these two 'per day' data series in order to provide specific insights into the likely supply outlook during the coming weeks and months. In particular, take note of the tendency for marketings to decline during the second half of the year and to remain low during the first quarter of the year following. The latter point, that feedlot marketings actually tend to increase from fall into winter, isn't as obvious since cattle slaughter traditionally declines to its annual lows during March. The underlying difference is the typical fall surge in cow culling, with the resulting acceleration in the cow kill increasing the overall slaughter rate and beef production above those levels seen during spring.

cattle3_sept82016Also note that I've built a five-month lag into the placement rate. I did this for two reasons. First, it makes the two series correspond seasonally, so that flow of animals through lots is roughly similar. The disparity between the fall placement surge and the spring marketings peak is still very obvious. Second, the annual low in placements reached during spring serves as a rough projection of autumn marketings.

cattle4_sept82016Accelerated feedlot sales exaggerated fed cattle marketings and slaughter totals during summer 2016. But the supply of market-ready animals is diminishing on seasonal basis. The chart above compares monthly feedlot marketings to a simple forecast based upon the feedlot placements five months prior, along with a correction for the number of workdays each month and seasonal factors. The forecast obviously isn't perfect, but it clearly reflects the seasonal pattern. The forecast suggests feedlot marketings and cattle slaughter will prove very large during September, but also implies much smaller supplies will be available through the fourth quarter. Ultimately, this indicates the recent downtrend in cattle prices will persist during the weeks ahead. But it may also signal a decisive reversal will occur late this year.

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