Cattle Inventories, Feedlot Supplies and Cold Storage Stocks

On Friday USDA released a flurry of reports covering cattle inventories, feedlot cattle supplies and the monthly survey of public refrigerated warehouses. Below are some very brief notes on each and we hope to expand on them in the next few issues. We have added more detail on page 3 and 4::

1 Cattle Inventory Survey:

The survey results generally came in at or above prereport estimates. While in the short term the report could be construed as somewhat bearish for cattle prices, the report also confirmed that US cattle supplies will continue to decline in the next two to three years, paving the way to even higher beef prices. US cow-calf operators show no signs of herd rebuilding despite record cattle prices achieved in the first half of this year. Heifers held back for beef cow herd rebuilding declined 4.5% compared to a year ago. Pre-report estimates were looking for a 3.3% decline. The calf crop for 2011 was estimated at 35.5 million head, just 0.5% lower than a year ago, compared to prereport estimates which expected the calf crop to decline 1.5%. While the low heifer retention number was long term bullish for cattle prices, the much larger calf crop is bearish in the short term.

A larger than expected cow herd, including higher dairy cow numbers, July 1 Cattle on Feed The survey results will likely weigh on 2011 deferred futures but should have limited impact on 2012 market. The survey showed that July 1 cattle on feed inventory was 3.8% larger than a year ago, compared to pre-report estimates looking for a 2.7% increase. Producers placed 4.1% more cattle on feed compared to pre-report estimates looking for a 6.6% decline in placements. One should put the placement numbers in perspective, however, This is the time of year when placements at the lowest point and consequently even small shifts in placements from one month to the next appear quite large.

Drought in the Southern Plains caused producers to pull some calves forward. Interesting to note the change in placements compared to previous month. June placements were down 115k head compared to May. Last year, June placements dropped 402k from prior month. Texas and Kansas showed net increase in placements compared to year ago, with much of the gains coming in the lighter weight categories (less than 700 pounds). Smaller placements now expected in August and September, which should limit cattle and beef supplies in the winter month and add to the normal weather risk premiums build into futures prices.

Cold Storage:

The report could be construed as a modestly bullish report for pork despite the fact that pork stocks are up 20% from a year ago. The pace of stock drawdown in June was in line with historical trends. On the other hand, the survey results were bearish for chicken as white meat inventories remain burdensome. Ham inventories were up 23% from the previous month compared to 14% five year average. Chicken breast inventories are 47.4% over year ago levels. Total beef, pork and poultry stocks actually declined a bit compared to May, an indication June protein demand was relatively strong. Protein stocks remain well above year ago levels, however, largely due to more pork and chicken compared to a year ago.

The Daily Livestock Report by Steve Meyer and Len Steiner

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