Dryness Adds to Bigger Than Expected U.S. Cattle Placements

Ranchers moved 4.4 percent more cattle into U.S. feedlots last month than in January 2017, the U.S. Department of Agriculture (USDA) reported on Friday, surpassing the high end of analysts' average forecasts.

Analysts partly attributed the placement outcome to severe drought in Texas and Oklahoma, along with continued dryness in parts of the northern Plains, that forced cattle off winter wheat grazing land.

Packers paid feedlots more for their cattle, which allowed them to buy calves to fatten. And a growing number of heifers entered feedyards - a sign of slowing U.S. herd expansion, said analysts.

Larger-than-expected placements of heavy weight cattle in recent months imply bigger supplies around the late spring to early summer time frame, according to analysts.

On Monday, Friday's report may pressure Chicago Mercantile Exchange live cattle summer contracts, while front months track near-term wholesale beef and cattle prices, said analysts.

USDA's report showed January placements at 2.068 million head, up 4.4 percent from 1.981 million a year earlier and above the average forecast of 1.989 million.

The government put the feedlot cattle supply as of Feb. 1 at 11.630 million head, up 7.9 percent from 10.782 million a year ago. Analysts, on average, forecast a 7.4 percent increase.

USDA said the number of cattle sold to packers, or marketings, were up 6.1 percent in January from a year ago to 1.858 million head.

Analysts had projected a 6.0 percent rise from 1.751 million last year.

The main issue with January's placement bump is drought in the southern Plains, which likely included some heifers that were originally intended as replacement animals, said North Dakota State University economist Tim Petry.

"We're going to moderate the increase in the U.S. cattle herd anyway, and you throw in all this dry weather it would help to further moderate that increase," said Petry.

Mike Sands, independent market analyst, agreed that southern Plains dryness played a role in the rush of cattle into feedlots.

However, Sands pointed out that placements in Corn Belt states were steady to up slightly from a year ago, and most of the placement increase came from cattle weighing over 700 pounds.

"Maybe feeder cattle supplies aren't quiet as tight as USDA's Jan. 1 inventory report suggested. Or profitably on the cattle sold in January were pretty good, and it looks like cattle feeders continued to be pretty aggressive at replacing those cattle," said Sands.

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