Tight margins likely cut November feedlot placements

The number of cattle sent to feedlots for fattening fell for the second consecutive month during November as expensive corn hurt beef producers’ profit margins, several analysts said.

Feedlot placements in top U.S. cattle states during November likely fell 0.7 percent from 1.96 million head in the same month in 2010, according to a survey of five analysts prior to the Agriculture Department’s next monthly Cattle on Feed update. The report is scheduled for 2 p.m. Central time Dec. 16.

Three of five analysts projected placement declines ranging from 1 percent to 2.5 percent, while the other two forecast increases from 0.3 percent to 2 percent.

Much like the lack of consensus among livestock analysts, there is little apparent trend in feedlot placements since summer. Placements rose compared with year-earlier levels in three of six months through October and fell the other three, according to USDA data.

But there are a couple things on which most analysts agree: Feedlot operators continue to be squeezed by high feed costs stemming from corn’s record rally earlier this year, while supplies of young feeder cattle are shrinking in the wake of severe drought in the Southern Plains.

Prices for slaughter-ready cattle rose to all-time highs last month, and the outlook for a strong market in 2012 has encouraged feedlot managers to maintain relatively high placements even amid expensive feed, analysts said.

High expected prices next year are encouraging feedlots to “bet on the come,” said Elaine Johnson, an analyst with CattleHedging.com in Westminister, Col. Additionally, a sharp drop in corn prices this fall has led to improved beef producer margins and many feedlots have excess capacity, she said.

“With prospects for further declines in feeder supplies looking forward everyone is competing to stay in the business,” Johnson said.

In trading Dec. 13, CME Group live cattle futures for February delivery were unchanged at $1.1865 a pound, while April futures settled at $1.228. Cattle reached a record $1.25375 on Nov. 4, based on the closest-to-expiration futures contract.

Feedlots absorbed losses on animals sold to meatpackers for the seventh consecutive month during November, based on industry-wide averages tracked by the USDA. Still, cattle prices have been high enough to allow many feedlots to turn profits, CME traders said. Combined with concern over tighter feeder supplies next year, feedlots continue to place young animals.

Feedlots are “trying to place anything they can,” said Jim Clarkson, a broker with A&A Trading near the CME live cattle futures pit. “There’s a perception that the number of feeders is going to run out.”

During November, live cattle averaged nearly $1.22 a pound, up 22 percent from the same month in 2010, based on CME futures. Feeder cattle averaged about $1.44 a pound, up 26 percent from a year earlier, and touched a record $1.4985 on Nov. 18.

A gauge of beef supplies four to eight months in the future, feedlot placements are among the most widely-followed measures in the cattle industry. Cattle placed in feedlots during November will be sent to slaughter beginning around April.

In another closely followed number in the monthly USDA report, the total number of cattle on feed as of Dec. 1 is expected to be up 3.7 percent from 11.61 million head a year earlier, based on the average of the five analysts’ estimates. On-feed inventories were above year-earlier levels in every month since June 2010.

Despite higher feedlot numbers, the total cattle herd fell to a record low earlier this year as drought withered Plains pastures. Amid an outlook for further export market strength,  beef supplies are expected to stay tight, forcing consumers to pay even more for steaks and burgers.

In 2012, U.S. beef production is expected to drop 4.9 percent from 2011 levels, to 25.1 billion pounds, the lowest since 2005, according to a separate USDA report earlier this month. Retail beef and veal prices are expected to increase 8 percent to 9 percent this year and rise another 4.5 percent to 5.5 percent in 2012, according to a USDA forecast.

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