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Cash market fuels higher feedlot placements

10/31/2013 @ 3:21pm

Government data for the number of cattle in the nation's feedyards as of Oct. 1 and placements in September were in line with the average of analysts' expectations.

Marketings of fattened cattle for slaughter were almost two percentage points higher than the average trade estimate, fueled in part by higher prices in the cash markets over the past few months.

The U.S. Department of Agriculture's cattle-on-feed report released Thursday showed about 1% more young cattle, known as placements, entered U.S. feedyards in September compared with a year ago, when the figure was at its smallest on record for the month owing to a spike in grain prices.

The placement number was reported at 2.025 million head, well within the range of analysts' estimates, which brought the figure up 1% from September 2012. Analysts expected placements to come in between 2.5% below to 7.0% above the year-ago figure.

The USDA reported a total of 10.144 million head of cattle in feedyards as of Oct. 1, down 8% from the same time last year. Analysts had on average estimated the on-feed figure at about 10.173 million, or down 7.4% from a year ago.

Favorable pasture conditions across most of the Farm Belt due to cool, dry weather over the summer and fall likely encouraged more producers than usual to keep young cattle on the range for longer, rather than sending them straight to commercial feedlots to be fattened for slaughter, analysts said.

So although placement numbers were up slightly from this time last year, when the fewest head of cattle entered feedyards on record for the month of September, analysts said the supply landscape for the year ahead will remain tight.

Years of industry consolidation also have contributed to the historically small supply of slaughter-ready cattle, pinched further by the gradual disappearance of Zilmax, a growth-promoting feed additive that drug maker Merck & Co. (MRK) suspended sales of in August amid industry concerns about animal welfare. These factors have underpinned gains in the price of cattle in negotiated markets over the past few months.

The USDA's survey reported cattle that were shipped from the feedlots, or marketings, to the processing plants last month at 1.695 million head, 6% above a year ago. Analysts had on average projected September marketings up 4.3% from 2012.

"The cash market has made its way to higher prices than we've ever seen," said Trey Warnock, an analyst with Amarillo Brokerage in Texas. "Cash has rallied up to the point where people can finally make money on cattle for the first time in many months, so I think there's been a lot of incentive to be a more aggressive cattle seller here."

September had one more weekday this year compared with 2012, but one fewer Saturday, resulting in slightly more available time for processing cattle.

Analysts considered the data neutral for futures.

Write to Kelsey Gee at kelsey.gee@wsj.com
(END) Dow Jones Newswires
October 31, 2013 16:13 ET (20:13 GMT)
DJ USDA Data Show Expected Tightness in Cattle Supply; Marketings Up 6% From 2012->copyright

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