When the impending rotation is unfavorable (especially considering the capital at risk) and closeout cash flow turns negative, the rational strategy for feedlot managers is to defer the swap as long as possible. Thus, cattle stay on feed longer, generate more weight and create additional revenue, while avoiding management headaches and the risk associated with new arrivals.

That strategy is evidenced by the recent surge in carcass weights (Figure 3). Despite higher ration costs, steer carcass weights peaked in excess of 880 lbs. in mid October. Bigger weights may still be in store given that seasonal weight sometimes peaks in November. Moreover, the 120-day, on-feed inventory is record large for October (3.6 million head vs. 3.0 million head in 2011) and now accounts for one-third of the total cattle on feed. That influence is two-fold:

  • One, it’ll take time to work through that population, meaning bigger cattle and more weight;
  • Two, leverage will be hard to maintain on the selling side for the next several months, though that should transition quickly as we move into spring.

beef steer carcass weights

Finally, the packer merits some discussion here. Therein enters consideration of regional differences. In aggregate, through September, only two months have witnessed placements exceeding year-ago levels (February and May). But there’s an exception to be considered. Placements in the three-state region of Nebraska, Iowa and South Dakota have lagged 2011 only two months (April and September) out of nine. Moreover, total placements in the region are 5% ahead of 2011, while placements in Kansas and Texas are both running 8% behind last year’s delivery rate.

That’s not a new trend (Figure 4) and underscores the evolving nature of the feeding industry. As mentioned in June:  “…cattle feeders in the Nebraska/Iowa/South Dakota region operate under different business dynamics vs. larger operations in the High Plains. Many are diversified businesses allowing for greater marketing flexibility from week-to-week.” But what’s most important, especially in light of excess packing capacity, is the influence on the fed market and likelihood of impending rationalization. Clearly, beef processors are playing catch-up in the southern region, while supply is much more comfortable in the north.

monthly feedyard placement chart

There’s never space enough to do it all justice. The discussion above revolves around the production sector but overlooks adjustments also occurring among food-service vendors, restaurateurs and food retailers. This month’s discussion also ignores the weekly and monthly market developments.

The priority, though, is to illustrate the shifting environment within the production sector around those markets. And seemingly, the pace of change is accelerating and mandating ever-faster response from all players in the value chain. With that in mind, as always, it’s critical to remain objective and stay informed.

price summary for October Monthly Market Preview

Nevil Speer is a Western Kentucky University professor of animal science. Contact him at nevil.speer@wku.edu.