USDA Cattle on Feed Report for January

The USDA NASS Cattle on Feed report for January was released last Friday.  My take on the report is that it was reasonably neutral.  Placements, marketings, and on-feed numbers were all well within pre-report estimate ranges and were in fact very close to pre-report averages.  However, from a price perspective, the market appeared to have considered just how large these numbers were and there has been substantial risk covering since the pre-report estimates were released mid-last week.  Expectations don’t stay the between when they’re taken and when they’re revealed.

Cattle on feed for the slaughter market in the United States for feedlots with capacity of 1,000 head or more head totaled 11.958 million head on January 1, 2020.  The inventory was 2.3% above January 1, 2019.  This is modestly more cattle than were anticipated prior to the report but well within the range of estimates by traders and analysts.  Inventories in five of the seven states are higher while those in Iowa are essentially level and Nebraska are down from prior years.  Further, cattle on feed over 90 days and over 120 days have begun their seasonal climb that usually peaks in March.  These two inventories are behind last year’s numbers with the aggressive marketings through the last half of last year and cautious placements.

Marketings of fed cattle during December totaled 1.834 million head, 5.3% above the same month in the prior year.  These are strong marketings.  Expectations were also for an increase of 5.3% above the prior year.  Placements in feedlots during December totaled 1.828 million head, 3.5% above the same month of the prior year.  Pre-report expectations were for placements to be 3.3% above the prior year.  Again, the actual report estimates aligned very closely to what was expected prior to the report.

Beef supplies through the first quarter of 2020 will likely be above the prior year’s quarter and it is unlikely fed market prices will see similar strength.  That appears to be what the live cattle futures market is communicating.  Beef demand and beef primal cut prices were excellent through the fall.  The strength of these market drivers is softening.  February tends to be a tough month for downstream margins, slaughter volumes, and any price improvements.  The adjustment appears to have started early and just ahead of the report.

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