by Stephen Koontz, Colorado State University

The USDA Cattle on Feed report was released Friday, Aug. 23, and contains information on inventories at the beginning of the month and flows of animals into and out of feedlots for the prior month. Placements, marketings and on-feed numbers were within the ranges of prereport expectations, but the report does have a bullish tone. Placements are the most important piece of information in the Cattle on Feed report. Marketings can be assessed through daily and weekly slaughter information, and on-feed inventories are largely the net changes due to these marketings and placements.

Placements were very strong at 105.8% of the prior year (see Tables 1 and 2). Prereport expectations suggested placements would be 104.1% of the prior year’s placements, with a range of 101.9% to 105.9%. Actual placements during the month of July were at 1.702 million head. This is at the top end of the range, but the majority of those participating in the trade survey were also toward the top end of the range. Regardless, these are heavy placements compared to the prior year and suggest early placement of animals from regions with drought pressure on forage. This also suggests early placement and perhaps tighter numbers later into the fall. Thus, the heavy placements are a bit bullish.

The futures for feeder cattle reacted strongly, with up moves on the fall-run contracts.

Fed-cattle marketings were slower than anticipated. Prereport expectations anticipated marketings would be 108.3% of the prior year, with a range of 107.8% to 109.0%. Actual marketings during the month of July were at 1.855 million head. These were strong marketings into the summer and likely some of the cause of the downward pressure on fed-cattle prices. Likewise, better packer margins and reasonably strong beef product prices have not incentivized packers to run hours and shifts.

These are heavy placements compared to the prior year and suggest early placement of animals from regions with drought pressure on forage.

The weakening feed-grain market through this spring and summer incentivized feedlots to grow larger animals — costs of gain were dropping, and prices remained strong. Feedlots responded. I do not recall observing counterseasonal changes in slaughter weights to that degree. On-feed numbers persist when weights are increased.

The beginning of August saw an inventory of 11.095 million — modestly smaller than beginning-of-July inventory of 11.304 million head. This was modestly larger than the inventory for the beginning of August the prior year. The prereport survey suggested that the on-feed inventory would be 100.1% of last year with a range of 99.8% to 100.5%. Actual inventories were 100.3% of the prior year.

However, market-ready inventories are the main driver of price in the coming month. The inventory of cattle on feed more than 150 days was down in the month of July, but only modestly, and remained larger than that of the prior four years. This long-feed inventory of animals will affect the fed-cattle inventory through the third quarter. However, the number of cattle on feed more than 120 days was sharply lower. All of these “on feed over days” are calculated and not in the report. However, the inventory-based outlook appears rather bearish in the third quarter, and bullish after that.

The markets

What does the technical picture say? Feeder-cattle and live-cattle futures were up Aug. 26, the Monday after the report. I am not sure it is entirely due to the report. Both markets have sold off hard during the entire month of August with a correction-like respite during the second week. The sell-off occurred after two months of sitting and resistance and failing to push through. I am also not surprised at the sell-off due to hedging activity from the strong placements.

There are no comfortable trends on the charts — with the exception of corn. Most contracts sit at support established back in April or around December of last year. Markets at support are a buy signal. However, strong marketing needs to persist with the inventory of long-fed cattle.

Editor’s note: This article is reprinted with permission from  www.lmic.info, where it was first published Aug. 26, 2024. Stephen Koontz is a professor in the Department of Agricultural & Resource Economics at Colorado State University.

Angus Beef Bulletin EXTRA, Vol. 16, No. 9-A