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Feedlots Cut Cattle Purchases 10% as Corn Surges on Drought

Aug. 17 (Bloomberg) -- U.S. feedlots bought 10 percent fewer young cattle in July as feed costs climbed after the most-severe drought in 56 years scorched grain crops.

Feedlots bought 1.922 million head of cattle last month, down from a record 2.135 million in July 2011, the U.S. Department of Agriculture said today in a report. Ten analysts surveyed by Bloomberg News projected a 9.1 percent drop, on average. The feedlot herd totaled 10.656 million head as of Aug. 1, up 0.7 percent from a year earlier. Analysts expected a 0.8 percent increase.

The price of corn, the main ingredient in livestock feed, has surged 60 percent since June 15 on the Chicago Board of Trade as a widespread drought dimmed harvest prospects. Feedlots probably lost about $200 a head on cattle sold in July because of high feed costs, Rich Nelson, the director of research for Allendale Inc. in McHenry, Illinois, said in a telephone interview before the report. Feedlot purchases in July 2011 were the highest for the month since the government began tracking the data in 1996.

‘Tough Comparison’

“With that tough comparison, this year’s July placement was certain to be lower,” Nelson said in a report. “Significant losses on outgoing cattle from feedlots in July provided further reason for buying fewer new calves and feeders.”

Feedlot operators buy year-old animals that weigh 500 pounds (227 kilograms) to 800 pounds, called feeders. The cattle are fattened on corn for about four to five months until they weigh about 1,200 pounds, when they are sold to meatpackers.

More than half of the Midwest was in severe drought as of Aug. 14, according to the U.S. Drought Monitor. While purchases were down from 2011, they were still “tremendously large” because the dry conditions spurred producers to move animals from pastures, Nelson said.

Feedlots sold about 1.913 million animals to meatpackers last month, down 0.3 percent from a year earlier, the USDA said. Analysts expected a 1.2 percent gain, on average.

Fattened cattle futures for October delivery fell 0.2 percent to settle at $1.25275 a pound at 1 p.m. on the Chicago Mercantile Exchange. The price has climbed 3.1 percent in 2012.

Feeder-cattle futures for October settlement declined 0.4 percent to $1.435 a pound. The commodity has dropped 3.6 percent this year.

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net

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

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