Cattle on Feed Report: Placements stronger than anticipated

USDA estimated there were 12.037 million head of cattle in large feedlots (1,000-plus head) as of Jan. 1, up 70,000 head (0.6%) from year-ago and 94,000 head more than the average pre-report estimate implied. The increase was primarily driven by a 6.5% jump in placements during December, which was above the highest pre-report estimate. December marketings increased 0.2%, which was fractionally less than anticipated.

The bigger-than-expected jump in December placements appears to have been driven largely by drought in the Plains, as Colorado (+10,000), Kansas (+10,000), Nebraska (+25,000) and Texas (+65,000) accounted for 110,000 head of the 119,000-head increase. Feedlots placed more cattle than year-ago in the four lowest weight categories, with lightweights (under 600 lbs.) up 9.8%, 6-weights up 8.0%, 7-weights up 5.9% and 8-weights up 4.4% from year-ago levels. Feedlots placed 4.5% fewer 9-weight cattle and the same number of heavyweights (1,000-plus lbs.).

A breakdown of feedlots inventories showed steers down 40,000 head (0.5%) and heifers up 110,000 head (2.4%) from year-ago levels. The larger number of heifers in feedlots signals herd contraction continues, at least partially due to drought conditions in pastures.

With all three categories coming in on the bearish side of the average pre-report estimates, the report is price-negative. Given the higher-than-expected increase in movement of cattle into feedlots and the weights of the increased placements, the most pressure will be felt in deferred live cattle futures. But with the increased placements in the lighter categories, it may mitigate the bearishness somewhat since it will spread out marketings. Plus, Cattle on Feed Reports rarely have much lasting price impact on the market and we expect focus to quickly return to wholesale price action and the cash cattle market.