Feedlots may be demonstrating a hit-and-hope mentality in
returning to rising buy-ins of cattle, and lowering prospects for beef prices,
despite elevated feed costs.
Official US data on Friday are expected to show that the
number of cattle placed for fattening on feedlots rose, year on year, in
December for the first time in seven months.
A Dow Jones survey of analysts' estimates pegs the rise in
placements at 4.1%, equivalent to an extra 70,000 head or so - although the
spread of forecasts is unusually wide, from a forecast of a 3.8% decline in
placements to an 8.8% increase.
A Reuters survey puts the increase at 3.8%.
A rise would contrast with declines in previous months, which
reached 19% in September, blamed on the hit to feedlot profitability from
elevated feed costs.
Estimates for USDA cattle on feed report and (range of estimates)
On feed, Jan 1: 95.6, (94.2-96.2)
Placed in December: 104.1, (96.2-108.8)
Marketed in December: 93.2, (90.2-95.0)
Data: perecentage of year ago levels Source: DowJones
Losses reached $314 per head in July, according to the
Livestock Market Information Center.A report from Paragon Economists and Steiner Consulting said
"Feedlots were forced to feed very expensive feed to very expensive feeder
cattle placed earlier in the year," at prices elevated by competition with
breeders for animals in the spring, when pasture conditions were better and
forage costs lower.
"Things have gotten better, but losses in November and December
were still estimated to be in the $120-a-head range," with losses forecast into
the spring at the equivalent of about 20 cents per pound.
'Home run mentality'
At broker FCStone, analyst Adam Stout said that cattle
feeding was "not a very profitable venture right now", confirming talk of
losses of more than $200 a head.
"But what they appear to be showing is a bit of a home run
mentality - putting themselves on course for more losses, or big profits," he
And feedlots appeared to be continuing to raising their intake
of feeder cattle for fattening.
"We had heard that December placements would be larger, and
we are hearing the same for January too, at least for the first couple of
weeks," Mr Stout said.
However, he forecast that "we will get back to that
[falling] trend", especially if better weather conditions encourage farmers to
hold on to animals and attempt to rebuild a US cattle herd expected, in data
next week, to be shown at its lowest level since the 1950s.
At broker US Commodities, Don Roose also flagged the
potential for a rise in placements this month too, but said that increases likely
represented a "statistical quirk", caused by poor pasture conditions and high
fodder costs encouraging ranchers to sell animals on.
"People are just waiting for rain," he said.
"If we not seen rain in the spring, we could see cattle placements
start to go up again," he added.
The US Department of Agriculture's Cattle on Feed report, to be released after the close of markets on Friday, is also being closely anticipated by grain traders, as a signal of the degree of rationing in the livestock sector being caused by high grain prices.