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Feedlot losses to last into 2016 - adding to pressure on cattle prices

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Feedlots look likely to extend into 2016 losses which began in 2014 – putting "even more downward pressure" on feeder cattle prices, and undermining the revival in the US herd, officials warned.

Feedlots lost an average of about $500 per head of cattle sold in October, taking nearly to a year their spell in the red, with cattle marketed in November 2014 the last to show a profit, the US Department of Agriculture said.

And this spell in the red "could easily continue until at least January 2016", spelling fresh troubles for feeder cattle prices which last week hit an 18-month low of 170.375 cents a pound in Chicago's futures market, extending to 22% their decline so far in 2015.

"These negative margins will likely exert even more downward pressure on feeder cattle prices, as well as on cow prices."

These price drops could in turn "temper enthusiasm for what has appeared to be a rapid build-up in cow inventories" from their lowest in more than 70 years.

'Weights are at record levels'

Feedlots' woes reflect a vicious circle of increasing weights in slaughter cattle undermining beef prices and animal values, in turn encouraging feeders to hang on to livestock and fatten it more in the hope of a recovery in values ahead.

"Cattle are spending longer periods on feed primarily because feed costs are relatively low, and the current market does not provide much incentive to sell fed cattle," the USDA said, terming "atypically long" the time animals are spending on feedlots.

The trend of elevated fed cattle weights – exacerbated by the heavy weight of feeder cattle bought into feedlots, as southern US ranchers attempt to exploit to the maximum pasture condition improved by decent rains – have been evident in slaughter data.

"Cattle carcass weights are at record levels and continue to increase counter-seasonally," the USA said, flagging steer weights which, at 920 pounds in September, exceeded bull weights for the first time, and increased to an average of 927 pounds as of the week ending October 24.

'Bid to force the market lower'

However, the effort by feedlots to feed their way out of difficulty has met with limited success in part because of the inability of a beef market, suffering a hangover from high prices, to absorb the extra supplies.

The USDA termed as "fragile" US beef demand, noting "weak interest in the ground beef complex and sharp crops in the value of byproducts such as hide and offal".

Furthermore, beef packers, themselves facing deteriorating profitability, "have increased the discounts on very heavy cattle.

"Packers are attempting to support their margins by constraining front-end supplies to force the live cattle market lower," the USDA said.

'Seasonal trends'

Packers at least have the calendar on their side, with the run up to year-end typically provoking an improvement in wholesale beef prices.

Forecasts for USDA Cattle on Feed report, November 20

Placements in October

: 96.0%

Range of estimates: 93.8-98.4%

Marketings in October

: 96.0%

Range of estimates: 95.0-97.2

Cattle on feed, November 1

: 102.2%

Range of estimates: 101.6-103.2

Data expressed as percentage of year-ago figure. Sources: Reuters, USDA

However, for feedlots, no such imminent relief looks on the cards, with the backlog of heavy cattle on feed "likely to provide large numbers of market-ready cattle -disproportionately steers -through at least the first quarter of 2016".

The comments come ahead of data on Friday expected to show both placements of cattle on feedlots, and marketings of fed cattle, down by 4.0% year on year in October.

By Agrimoney.com

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