Derrell Peel: Feedlot Dynamics Continue
The September Cattle on Feed report was largely a replay of the August report with larger than expected placements pushing feedlot inventories higher. Feedlot placements in August were 109.1 percent of last year’s level, above the average pre-report estimate and at the upper end of analyst expectations. Marketings in August were 96.9 percent of year ago levels. However, with one less August business day this year compared to 2019, the average daily marketings were slightly higher than one year ago.
The September 1 on-feed total was 11.394 million head, up 3.8 percent year over year. Large July and August placements have muted the seasonal low in feedlot inventories and pushed the September 1 total to record levels for the current data series back to 1996.
Reaction to this latest report is likely to be bearish. However, perspective is important to understand the current feedlot situation. Obviously, 2020 has been a strange year with unusual dynamics. Despite large placements the past two months, total feedlots placements are down 4.2 percent for the year to date (down 4.3 percent in the last six months).
Two months of large placements does not mean that we suddenly have more cattle. Over the course of the year, the total number of feeder cattle in the pipeline has not changed from what was indicated early in the year. Cattle inventories peaked in 2019 and January 1 estimated feeder supplies were down 0.4 percent year over year. As we work through 2020 and into 2021, feeder cattle supplies should continue to tighten modestly. The indications are that September placements will not follow the pattern of July and August.
Because of the normal seasonality of feedlot inventories, placements, and marketings, a twelve-month moving average (12MA) of each data series allows valid month-to-month comparisons and provides a longer-term view of feedlot production. The 12MA of feedlot inventories peaked in March and, despite increasing the past two months, is currently 0.6 percent below the peak. The 12MA of marketings peaked cyclically in March 2020 as well.
The 12MA of placements peaked recently in December 2019 and is currently 2.7 percent below the peak. The cyclical peak in 12MA placements was in Feb 2018. All of these highlight the fact that the industry has moved past the cyclical peak in cattle numbers and will see modestly tighter supplies going forward.
This does not mean that the current dynamics are without consequence. While the long-term totals have not increased, the unusual fluctuations in placements imply more short-term dynamics in the next few months. The July-August bulge in placements suggests higher feedlot marketings in the first quarter of 2021.
July placements were skewed to the lighter weight cattle, while August placements included more heavyweight placements, which further implies that cattle could be somewhat bunched up. However, winter weather typically spreads cattle out a bit, so the exact timing is uncertain. The ripples from the first half of 2020 will extend into early 2021.