U.S. feedlots bought 19 percent fewer cattle in September than a year earlier amid tight animal supplies and as rising feed costs brought on by the worst drought in 56 years curbed profitability prospects.
Feedlots bought 2.004 million head of young cattle last month, down from 2.469 million in September 2011, the U.S. Department of Agriculture said today in a report. Purchases were the fewest for any September since the USDA began tracking the figure in 1996. Twelve analysts surveyed by Bloomberg News projected a 15 percent decline, on average. The feedlot herd totaled 10.989 million as of Oct. 1, down 2.6 percent from a year earlier. Analysts expected a 2.1 percent decline.
The price of corn, the main ingredient in livestock feed, was up 18 percent this year through yesterday after the government projected the U.S. harvest will be the smallest in six years, as hot, dry weather eroded yields. High feed costs mean feedlots probably lost about $130 a head on cattle sold in September, Rich Nelson, chief strategist for Allendale Inc. in McHenry, Illinois, said in a telephone interview.
“Tightening feeder supplies as well as negative feeding returns limited placements,” Elaine Johnson, an analyst at Cattlehedging.com in Westminster, Colorado, said in an e-mail before the report.
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.
The bigger-than-expected drop in placements is positive for the market, said Don Roose, the president of U.S. Commodities Inc. Live-cattle futures for February and April delivery may open 0.25 to 0.5 cent higher on Oct. 22, and futures for December delivery may be steady to 0.1 cent higher, he said.
“The highlight of the report is that the placement figure, down 19 percent versus a year ago, tells us that supplies are going to continue to tighten into the fourth quarter and into the first half of next year,” Roose said in an interview from West Des Moines, Iowa, after the report. “The market is structurally supply positive.”
Feedlots sold about 1.598 million animals to meatpackers last month, down 12 percent from a year earlier, the USDA said. Analysts expected a 10 percent decline, on average.
Fattened cattle futures for December delivery declined 0.6 percent to settle at $1.27275 a pound at 1 p.m. on the Chicago Mercantile Exchange. The price is up 4.8 percent this year.
Feeder-cattle futures for January settlement fell 0.3 percent to close at $1.50225 a pound. The commodity has risen 1 percent in 2012.