The fed cattle market pushed to new seasonal highs last week over $130/cwt. Fed prices have continued to pleasantly surprise with a stronger than expected first quarter that has extended through much of April. Fed prices have been supported by strong boxed beef prices. After a brief drop in early April to $207/cwt. from the March weekly high of nearly $225/cwt., Choice boxed beef prices have recovered to $217/cwt. by late last week. Underlying strength in beef demand, both domestic and export are supporting boxed beef and fed cattle prices even as beef production is up 4.7 percent for the year to date.
The April USDA Cattle on Feed report showed an on-feed inventory fractionally higher than one year ago at 10.9 million head for feedlots over one thousand head capacity. Placements were larger than expected at 111 percent of last year and were, in fact the largest March placements in the current data series back to 1996. Placements often receive the most attention in the monthly reports and may cause some bearish reaction. While placements, along with the placement weight breakdown, provide more specific indications of the timing of fed cattle marketings and slaughter in coming months, the general idea that placements will grow should not be a surprise. Three years of confirmed herd expansion since 2014, and likely continued expansion in 2017, means that the cattle pipeline is growing, with plentiful feeder cattle supplies headed toward feedlots for months to come. Record March placements are consistent with the fact that the industry is in the first sustained herd expansion since the early 1990s, predating the current data period. However, sometimes it almost seems like increased monthly feedlot placements are viewed as a new source of supply that suddenly materialized and wasn’t already anticipated.
March marketings were 110 percent of last year. Monthly feedlot marketings often receive little attention, being viewed mostly as history by the time the report is released. However, strong marketings since mid-2016 have contributed greatly to the strength of fed cattle markets so far in 2017. The twelve month average monthly feedlot marketing rate (marketings as a percent of on-feed inventory) has been increasing since July, 2016 and is currently at the highest level since late 2014. The strong marketings rate has also helped keep days on feed down, with the Kansas Focus on Feedlot data indicating that days-on-feed is currently at the lowest twelve month average level since late 2014 as well.
Smaller carcass weights are also helping to hold beef production to smaller year over year increases and thus supporting boxed beef and fed cattle markets. Steer carcass weights were down 28 pounds year over year in the latest weekly data with heifer carcass weights similarly down 26 pounds. For the year to date, steers carcass weights have averaged 13 pounds less than last year while heifers are down 11 pounds. Aggressive marketings and reduced days on feed have played a part in smaller carcass weights. Another component is the fact that fewer heavy feeders have been placed in recent months. The percent of monthly placements over 800 pounds (twelve month average) has declined for several months. Lighter placement weight results in lighter slaughter and carcass weights.
The cattle industry in general and feedlots in particular have done a good job managing growing cattle supplies for most of the last year. If this continues the industry can do much to minimize the supply pressure coming to bear on cattle markets in the coming months. Given the reality of growing beef production, the bigger key for the foreseeable future is continued strong domestic and export beef demand.