USDA’s Cattle on Feed report released last Friday revealed that cattle feeders took advantage of lower feed prices in July by placing more cattle on feed. The monthly average of nearby corn futures was $0.79/bu lower in July relative to June, and distillers grain prices dropped proportionately with corn prices from June to July. This helped move projected closeouts on July placements into black ink. As a result, net placements of cattle into feedlots with 1,000+ head capacities were 12.3 per cent higher than July 2008 and 8.8 per cent higher than the previous 5-year average.This was at the high end of trade expectations and well above the 6.5 per cent average increase that was expected.
July marketings were about one percentage point lower than the average pre-release estimate, also lending to the bearishness of the reported figures. At 1.928 million head, July marketings were down nearly 6 per cent from July 2008. As a result of higher than expected placements and lower than expected marketings, the August 1 cattle on feed estimate dropped less than expected to 9.644 million head, 2.3 per cent lower than last year.
Placements of cattle could be higher than year-ago levels through the remainder of 2009. Placements for the last five months of 2008 were below average levels. Plus, the recent drop in feed prices has substantially improved projected feeding margins. Steer calves weighing 550 lbs. placed on feed now, and finishing in mid-April, could see a profit of $40/head using a conventional corn-only ration, based on feed prices and feeder cattle prices in the table below and average feeding performance. For a WDGS ration (with cheaper feedstuff prices and improved performance projections), this profit jumps to $112/head. Heavier weight placements don’t pencil out quite as well right now. A 750 lb. yearling steer going on feed now and finishing in late January has a projected loss of $5/head for a conventional corn-only diet, but switching to a ration containing 40 per cent WDGS (on a dry matter basis) results in a $47/head profit. While these costs and performance expectations will differ for all feeders, it does suggest that many feeders can be profitable and lock in a positive margin for current placements, an opportunity badly needed after 2+ years of mostly negative closeouts.
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