Bloomberg News

U.S. Feedlots Bought 2.8% More Cattle on Expectation for Profit

March 23, 2012

U.S. feedlots boosted purchases of young cattle by 2.8 percent in February from a year earlier, as rising prices for slaughter-ready livestock spurred expectations that profits would expand.

Feedlots (CATTLEPL) bought 1.714 million head of cattle last month, up from 1.667 million in February 2011, the U.S. Department of Agriculture said today in a report. Twelve analysts surveyed by Bloomberg News projected a 2.9 percent gain, on average. The feedlot herd totaled 11.677 million as of March 1, up 2.6 percent from a year earlier. Analysts expected a 2.5 percent increase.

The spot-market price of slaughter-ready steers sold to meatpackers climbed to $1.30 a pound on Feb. 20, the highest since at least November 2002, USDA data show. The price of corn, a key feed ingredient, dropped 6.2 percent in the past year through yesterday on the Chicago Board of Trade. Wholesale choice beef surged to $1.988 a pound on Feb. 29, the highest since at least January 2004.

“People were looking at some record prices of fattened cattle going out to market,” Daniel Bluntzer, the research director at Frontier Risk Management in Robstown, Texas, said in a telephone interview earlier this week. “The beef market really came alive, so there was a lot of chasing of animals.”

Feedlot Losses

Feedlots without risk-management plans still lost about $70 per head sold in February, as the price of young cattle also surged, Ron Plain, a livestock economist at the University of Missouri in Columbia, said in a telephone interview. Spot-market feeder cattle tracked by the Chicago Mercantile Exchange climbed to $1.5919 a pound on Feb. 28, the highest since at least 1996.

Feedlots may have been willing to buy, or place, young cattle at near record highs because they were optimistic that the price of slaughter-ready cattle would rally further, Bluntzer said. Feedlots buy year-old animals that weigh 500 pounds (227 kilograms) to 800 pounds. The animals are fattened on corn for about five months until they weigh about 1,200 pounds, when they are sold to meatpackers.

“Just because you place a loser doesn’t mean you’ll sell it as a loser,” Bluntzer said.

Feedlots sold about 1.755 million animals to meatpackers last month, down 2 percent from a year earlier, the USDA said. Analysts expected a 0.4 percent decline, on average.

Fattened cattle futures for June delivery fell 0.6 percent to $1.2140 a pound at 12:53 p.m. on the Chicago Mercantile Exchange. Before today, the most-active contract gained 7.3 percent in the past year. Feeder-cattle futures for May settlement dropped 0.5 percent to $1.5395 a pound.

To contact the reporter on this story: Whitney McFerron in Chicago at wmcferron1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.


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