The USDA survey of feedlots with +1000 head capacity, which is due out on Friday, Feb. 22, is expected to show inventories of cattle on feed well below year-ago levels. Analysts polled by Dow Jones ahead of the report indicated that, on average, they expect feedlot inventories as of Feb. 1 to be down 6.2% from year-ago levels.

If correct, this decline in the inventory would imply that on-feed stocks are currently about 668,000 head smaller than they were a year ago, and 440,000 head smaller than the average for the past five years. This implies smaller supplies of fed cattle available for marketing going into the spring and smaller beef supplies.

While analysts were fairly close in their estimates of feedlot stocks, they were split in their views of feedlot placements in January. On average, the expectation is that feedlots placed the same number of cattle on feed this year as they did the previous year. About half of analysts polled indicated they expect feedlot placements to decline in January, likely reflecting the sharp pullback in live cattle futures outfront, and the high breakevens on cattle being placed on feed this winter.

June live cattle futures at the beginning of January were priced at around $132/cwt., but then declined by some 700 points in a matter of two weeks, dramatically changing the expected profitability on each animal placed on feed during that time. The decline in live cattle futures came at a time when corn prices were steady to higher. March corn futures at the start of January were hovering around $6.80/bu., but then gained about 7% for the month.

But only half of the analysts polled indicated they expected placements to be smaller than in January 2012. The other half of analysts had placements either at par or above year ago levels. High feed costs last fall caused feedlots to dramatically reduce the number of cattle placed on feed. Between July and December, feedlots placed 1.34 million fewer cattle than the previous year. The slowdown in the flow of cattle was significant enough that despite a 3% decline in the US calf crop in 2012, the supply of cattle outside of feedlots as of Jan. 1, 2013, was actually larger than it was the previous year.

dow feedlot estimates

U.S. feedlot inventory - cme report

The supply of feeder cattle outside of feedlots can be easily derived from the data in the semi-annual survey. Total supplies of calves under 500 lbs., and steers/heifers over 500 lbs., was 38.817 million head. From this, one needs to deduct the number of cattle that were on feed as of Jan. 1, which was 13.351 million head. As of Jan. 1, there were 25.466 million head of feeder cattle outside of feedlots, 0.7% more than a year ago. This larger supply of feeder cattle is expected to keep feedlot placements at or above year-ago levels.

There was one more marketing day in January 2013 than in January 2012, so keep that in mind when looking at the marketing numbers. Analysts expect the number of cattle marketed in January to be 4.7% larger than a year ago. When adjusting for the extra marketing day (i.e., calculating the daily average slaughter), cattle marketings in January are expected to be about the same as they were in 2012.

A Closer Look: Stage Is Set For Herd Expansion, But…

The bottom line is that USDA’s Cattle on Feed report is expected to confirm that feedlot supplies are much smaller than in 2012. The trend in placements will be something to watch as feedlots and producers struggle with high feeding costs but also higher feeder supplies outside of feedlots.

Also interesting to watch will be the composition of cattle placed on feed. The trend recently has been for heavier cattle to be placed on feed. The change in composition won’t impact the actual beef supply for the year but rather the marketing windows and flow of cattle in the coming quarters.