USDA October Cattle on Feed Report Is Supportive of Corn Basis
The USDA’s Cattle on Feed report for October was fairly benign as placements, marketings and inventory levels were all pretty close to the pre-report estimates. We believe that the slight 1% year-over-year (YoY) decline in cattle in feedlots is neutral and can be offset by larger placements in Texas, Nebraska and Colorado and can be supportive of local corn basis. Using data from the USDA’s weekly feeder cattle reports, we believe that normal fall run should occur in Nebraska, Colorado and Kansas, which can help maintain on-feed inventory levels and can support local corn basis.
Cattle on Feed
The reported inventory levels at 11.2 million head (MH) experienced a slight year-over-year (YOY) decline of 1% and were +325,000 head from September. Reported cattle on feed in Nebraska declined by 90,000 head from 2018 and were -7% YoY. Inventory levels in Iowa contracted by -7% from 2018. Reported cattle on feed numbers in Kansas and Colorado were essentially unchanged from the previous year. Reported cattle on feed in Texas rose by 5% YoY from 2018 to 2.78 MH, as fall run placement pattern enhanced on feed volumes. Inventories in both Idaho and Washington rose and were +4% and +7% YoY as weekly Canadian feeder cattle imports were strong during September.
Placements during September totaled 2.09 MH and were +2% from September 2018. Placements during September in all key cattle feeding states, with the exception of Kansas and Iowa, were up from 2018. The general U.S. placement construct during September continues to favor midweight cattle, with 48% of the placements favoring the 700-900 lb range.
- At 455,000 head, cattle placements into Texas feedyards rose 15% YoY and were +5% from August. In typical Texas fashion, the September placement structure continues to favor lightweight calves.
- Weekly Mexican feeder cattle imports during September were slightly higher than in 2018. Most of these cattle are destined for Arizona or Texas feedlots, the import pattern illustrates that a strong dollar continues to draw on Mexican cow/calf level supplies.
- Placements in Nebraska and Colorado were +2% YoY during September. Weekly reported USDA feedlot sales data shows October placements in Kansas and Nebraska running slightly higher than 2018. October placements in Iowa, Kansas and Nebraska represent the bulk of the fall run placement pattern and helps establish the fed cattle supplies during March-June.
Heifers on Feed
The October 1 number of reported heifers on feed—4.41 MH—was the second largest value for the month going back to 2000. The USDA reports the by-class categorization in the quarterly Cattle on Feed reports during January, April, July and October. We believe that this number is noteworthy because the percentage of heifers on feed can be used as a potential signal about the status and potential direction of the U.S. breeding herd. Using the chart below, the number of heifers on feed as total percent of cattle on feed provides a signal that the status of theU.S. breeding herd is entering into either a mild contractionary or late-cycle stabilization phase.
We make this statement because during the 2014-2016 U.S. beef cattle cycle, heifers were aggressively being retained to help capture positive producer level cow/calf margins. Since 2016, the number of heifers entering the feedlot in percentage terms has been steadily increasing, suggesting that the U.S. cattle herd has exited the expansionary portion of the cycle and has moved toward a state of equilibrium.
Overall, the sharp YoY 15% increase in the Texas placements combined with the gradual increase of cattle placements in Nebraska and Colorado is positive for corn disappearance and can be supportive of corn basis in the key cattle feeding states. While the bulk of the fall run in Kansas, Nebraska and Iowa occurs during October, we believe that the data from the USDA’s weekly Feeder & Stocker report illustrates that October cattle placements will be larger than 2018. If October placements in Kansas and Nebraska are above 2018 levels, we can expect that local and regional corn basis in key cattle feeding states to be supported as demand should increase.
We believe that the heifers as a percent of cattle on feed shows that the U.S. beef cattle breeding herd is either in a state of equilibrium or in a mild recalibration period. If the breeding herd maintains its current levels, we would expect localized future corn demand, 2021 and beyond, in the primary cattle feeding states of Texas, Kansas, Nebraska and Colorado to stabilize.
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