Friday's USDA Cattle on Feed Report is a bit bearish. May feedlot placements were down from last year, but not down as much as the trade generally expected. May marketings were also down, but down more than the trade expected. The result of more cattle going on feed in May than traders expected and fewer going to market than traders expected is a larger feedlot inventory on June 1 than traders expected.
Monday's fed cattle futures could open 50 cents to $1 lower. Weakness could be offset by speculative traders moving money that had gone from beef to pork back to beef. Cattle could gain more technical support after the August contract climbed above its 50-day moving average, which attracted more buying. Traders also attributed Friday futures gains to short-covering, and to unwinding of spread trades.
The June 1 cattle on feed inventory did come in below the year-earlier figure for a tenth consecutive month. That suggests beef supplies will continue to tighten
Looking at the numbers. From surveys of producers USDA estimated the June 1 cattle on feed inventory at 10.736 million head or 96.9% of the June 1, 2012 value. That's about 0.4% more than the average trade guess of 96.5% of last year, but within the range of guesses of 94.3% to 97.6%.
May placements totaled 2.049 million head or 98.3% of a year ago, a bit above the average trade guess of 95.9% and toward the top end of the pre-report guess range of 84.3% to 99.8%.
May marketings of 1.948 million were 96.5% of a year ago, a bit less than the average trade guess of 97.9% and below the bottom of the 97.0% to 101.1% pre-report range.
Ample reasons exist to expect tighter supplies. March and April cattle placements into feedlots were higher than a year ago as continuing dry pastures accelerated placements. A backlog of feeders that was created late last year and early in 2013 upped the number of cattle available to place in early spring.
Fewer feeder cattle are coming from Mexico. Last spring Mexican feeders made up as much as 30% of placements in California, Arizona, New Mexico, Texas and Oklahoma. In April 2013, Mexican feeder cattle imports made up about 15% of placements in feedlots in these states. Imports of feeder cattle from Mexico in April were down 42% from a year ago. Mexican producers have sharply reduced the number of heifers they ship to the U.S. market. That might signal herd expansion in Mexico.
Feeder cattle imports from Canada were sharply higher than a year ago in the first four months of the year, before slipping in May. Still, in 2013's first four imports of Mexican and Canadian feeder cattle are down more than 250,000 head.
Dry conditions in several areas suggest feeders will keep moving off pasture. However, feedlot margins remain bleak, particularly in late May and June as fed cattle prices fell below lofty expectations.
Rising September and December corn futures in the second half of May and eroding October live cattle futures during May further intensified margin pressure on feedlots. Feeder cattle futures drifted lower in May, as they faced pressure from feedlots trying to buy cattle cheaper to lift feeding margins.
On the flip side, feedlot managers know feeder supplies will stay squeaky-tight. Some may have adopted a "but 'em while they're available" attitude. Feed lot operators do not like to see empty pens. Plus empty pens have no chance to make money.
Little relief for beef lovers. For consumers, beef supplies will remain tight, and pricey.
However, if you like pork and chicken output of both of those meats will rise this year and continue to rise next year.