Little change occurred in the cattle market in August. Fed Choice slaughter steers in the Amarillo feedlot area fluctuated narrowly around $65/cwt., gaining about $1 over July. Feeder cattle and calves also held stable but volumes were quite light. For the month, 600- to 700-lb. feeders averaged $2-3/cwt. above July.
Feedlot Concentration While most cattlemen think of concentration as being a packer problem, it also exists at other levels. We've discussed in past articles the relatively few number of retail food chains that handle the bulk of the beef trade. Concentration at the cattle feeding level is almost as intense.
The USDA releases information on cattle feeding in the U.S. each month. The data provides only total state statistics. A special year-end report, however, yields more information on size, location and marketings of these feedlots.
Individual feedlot statistics are not released. Using some inferences and calculations, however, we can obtain more information on the number of feedlots in each size category in each state.
There are only 105 cattle feedlots in the U.S. with one-time capacities of 32,000 head or more. These lots however, account for 45% of all the cattle feeding in the nation. Add the 144 medium-size feedlots (capacities of 16,000-31,999 head), and these 249 lots account for 70% of U.S. fed beef production.
Even more interesting is that many of these larger feedlots are actually owned by the same firms. Now, that's concentration.
Cattle Feeding Slowing Down Cattle and calves on feed for the U.S. slaughter market in feedlots with a capacity of 1,000 head or more totaled 9.20 million head on August 1. That's 2% above a year ago and the smallest gain in five months.
While the total U.S. figure was above the 1998 level, substantial decreases were recorded in Oklahoma, South Dakota and Texas. California, New Mexico and Arizona were also below year-ago levels in on-feed numbers.
Fed cattle marketings in July - 1.82 million head - were up 3% over a year ago. Washington, Nebraska, Iowa, California and New Mexico had strong gains. Idaho, Colorado, Oklahoma and South Dakota were below year-earlier levels.
The real highlight of this latest cattle feeding report was the reduction in feedlot placements. In July, cattle and calves placed on feed in these feedlots were only 1.81 million head - down 6% from 1998 and the first such reduction this year.
The biggest percentage gains in placements occurred in Iowa and Arizona. In contrast, big decreases were seen in Colorado, South Dakota, Oklahoma, New Mexico, Texas and Idaho.
This sharply lower placement level could substantially help the fed cattle market situation later this winter. The feeder placement weight information suggests that heavier weight animals are becoming difficult to buy. All weight classes of the feeders placed on feed were down except the lightest calves, those less than 600 lbs. That could mean longer feeding periods for feedlots. Market Directions
In the short run, the demand for beef, looks somewhat improved. While beef production has been running about 3% above a year ago, retail Choice beef prices are also up 2-3%. Of course, the amount of Choice beef produced has actually been reduced, so the comparison may still not be too meaningful.
Stable fed cattle prices, coupled with reduced breakeven costs caused by lower feed prices, have helped feedlots move back to profitable levels. The sudden July reduction in placements suggests feedlots are now either becoming more cautious or the tighter feeder supplies are hurting. In either case, excessive fed cattle marketings this winter may be avoided. This may allow fed prices to stay in the mid-$60 range through year's end.
Beef cattle ranchers should be in an excellent position this fall if the weather holds.
Drought conditions are getting worse in the Southern Plains, and much of the East is probably beyond salvation. This will spur earlier marketings of calves and lighter weights.
Feeder cattle and calf prices, however, are expected to remain very good and substantially above a year ago. The price spread between feeders and feds is widening rapidly and will likely continue for the rest of the year. This suggests that as long as fed prices stay strong, feeders will command substantial premiums.