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2012 Feeder Cattle Supplies

2012 Feeder Cattle Supplies Source: Ross Pruitt Department of Agricultural Economics ad Agribusiness LSU AgCenter

The most recent USDA NASS Cattle on Feed report listed total capacity for U.S. feedlots greater than 1,000 head as unchanged from 17 million head from the beginning of last year to this year. This represents a 5% increase in feedlot capacity of lots with at least 1,000 head capacity since 1999 even though total U.S. cattle inventory has declined 8.4% during this time period. The increase in feedlot capacity among operations that handle at least 1,000 head stands in contrast to a 25% decline in the number of feedlots with less than 1,000 head. In spite of a largely unprofitable year for feedlots in 2011, the number of feedlots with less than 1,000 head capacity was constant at 75,000 while feedlots with at least 1,000 head capacity declined by 20 to a total of 2,120. Annual average marketings by feedlots, regardless of size, has held constant near 26.6 million head since 2000. Feedlots with less than 1,000 head capacity have accounted for approximately 14.5% of all marketings during this time period.
Aside from 2009, annual marketings from feedlots with 1,000+ head capacity have been at least 22 million head since 1999. Over this time frame, estimated capacity utilization has been on the decline. Under the assumption that a 1,000+ head feedlot could be turned over 2.1 times a year (i.e. 2,100 cattle could be fed and marketed), estimated capacity utilization has averaged 63% during the past five years. While capacity would never approach full utilization due to scheduled maintenance activities, continuing at such low level of capacity will place existing feedlots under more additional financial strain than they currently are. Feedlots are already paying more for cattle than what they want given the price of fed cattle and having to buy younger animals to be fed longer on high priced corn hoping for a rise in fed cattle prices prior to selling as finished animals. Tightening supplies will ensure that feedlots cannot operate much higher than recent levels of capacity utilization in the next 3-5 years.
On January 1st, the estimate of U.S. feeder cattle supplies outside of the feedlots was 25.8 million head. Total annual placements of cattle in 1,000+ head feedlots average 84% of the January 1st residual feeder cattle supply. In 2011, placements were 89% of feeder cattle supplies indicating how aggressive 1,000+ head feedlots were in placing cattle to operate as efficiently as possible. Long-term annual average marketings account for 96% of placements, but marketings for 2010 and 2011 were approximately 94.5% of placements. Using the long term percentages for placements and marketings, 2012 placements of feeder cattle in feedlots with at least 1,000 head capacity could be in the neighborhood of 21.7 million head with marketings in the range of 20.9 million. Both of these statistics would be a record low and imply a feedlot capacity utilization rate of 58% (also a low).
If 2012 placement and marketing levels mirror 2011 levels, then feedlots could operate at a capacity level of approximately 61%. However, that’s very unlikely to occur because of the 25.8 million head of residual feeder cattle supply, some of the heifers included in the other category from the January 1st inventory estimates may be pulled out of the potential feedlot supply and further reduce available supplies. Also, imports of Mexican and Canadian feeder cattle were down last year and are unlikely to rebound to the point to increase potential U.S. feedlot supplies.
Capacity utilization rates at a level below 60% are not sustainable for very long due to the fixed costs that must be covered. While each feedlot has a different cost structure, small reductions in capacity utilization can result in a 4 to 5 cent increase in per head per day costs. Cattle feeding is a margins business and while this may seem a small increase in costs, over 120 day feeding period it adds up. Eventually the U.S. feedlot industry will see a reduction in the number of firms operating or a reduction in capacity to minimize these losses. The demand among feedlots for available supplies will support prices for cattle in the short run, but this fighting won’t last forever and will result in some significant changes to the U.S. feedlot industry.