Call the Market

Understanding 'Placements' in the Cattle on Feed Report

ShayLe Stewart
By  ShayLe Stewart , DTN Livestock Analyst
Numbers don't mean anything unless they have something to be compared to or referenced from. (Chart by DTN Prophetx)

"Dad, I just don't understand. How can they call the Cattle on Feed report neutral when placements were up 10%? I mean, I'm thankful, it beats the alternative bearish beatdown that kills fat cattle prices and shackles the prosperity and outlook of the feeder cattle market, but 10%? I sometimes get nervous when they say anything on the report could be upward of 3% to 4% higher," woefully explained Feedin'-for-Gold Junior.

"Well, you see son, everything in life should be viewed as a potential tool. But I can see by your red cheeks, shortness of breath and wrinkled forehead that you're going to make a fine cattleman, or that pen 43 just broke out of the north corner again?! But, you see son, cattlemen must be brave enough to blaze a new trail, willing to wait out any market and always be ready to ask the tough questions. But just when you think you have things figured out, the cattle market has a funny way of keeping you humble and keeping you on your toes," calmly explained Feedin'-for-Gold Senior.

I think most cattlemen would agree this market does more than just keep one humble and on their toes. And I think taking the time to put the last Cattle on Feed report into perspective is essential, because Feedin'-for-Gold Junior isn't wrong -- it's hard to understand how placements being up 10% can be viewed as neutral if not put into the proper perspective.

Last Friday, USDA released the November Cattle on Feed report, which shared that cattle/calves on feed were up 1%, placements were up 10% and marketings were down 1%. Before the report was unveiled, analyst projections guessed placement numbers to be anywhere from 10% to 20% higher. Hearing such projections had many cattlemen at the edge of their seats to see what Friday revealed. If the report would have shown placements to be up the monstrous 20%, you can bet your bottom dollar futures would have been depressed and cattlemen would have been drinking the Thanksgiving wine a week early, straight out of the bottle. Nevertheless, because the report shared that placements were only up 10% compared to the possible 20%, it ended up being a pleasant bullish surprise.

It's important to understand what the placement sector represents on the Cattle on Feed report. "Placements" are cattle that are put into a feedlot with the intention to be fed a concentrated ration to later be slaughtered for quality meat. There are a couple of key factors that make the jump in placement figures make sense. First, this summer offered longer grazing periods. Cattlemen were able to graze pastures they haven't been able to graze in years because of the abundance of grass and rejuvenated water sources. Secondly, cattlemen were leery of this fall's feeder cattle market due to the uncertainly around the Tyson packing plant fire. The fire sent the market into utter chaos and no way in hell were cattlemen going to be selling their calves for a guaranteed loss at that time. Most opted to sit the initial sales out in order to give the market time to sort out what had happened. Thirdly, placement figures have been trending lower for nearly four months. June's placements were down 3%, July placements were down 2%, August placements were down 2%, September placements were down 9% and October placements were up 2%. The last time placement figures were down for more than four consecutive months was in the summer of 2014 when placement figures were down from April 2014 all the way until September 2014. With placement figures down for four months in 2019, it only makes sense that at some point those cattle had to trade hands and be sold.

So, to answer Feedin'-for-Gold Junior's question, the lofty placement figures being up 10% can be viewed as bullish/neutral because we know what's happening in today's market. Cattlemen have held onto their calves longer and finally they traded hands and walked into feedlots. Before you jump up and down and scream that the report was either bullish, neutral or bearish, you must first step back and assess the cattle market for what it is and what it isn't. Numbers don't mean anything unless they have something to be compared to or referenced from. Just like good seed-stock breeders are leery of single-trait selecting, cattlemen need to be plugged in and use tools, such as the USDA Cattle on Feed report, but they must know that's all it is -- a simple tool.

Cattlemen know their market better than anyone else. They live it, breathe it, profit from it from and lose money from it. A mentor of mine once said if you're in a situation where something doesn't make sense, don't get caught up in the fine details of one single report -- look big, look broader and more times than not your answers come from there.

ShayLe Stewart can be reached at ShayLe.Stewart@dtn.com

(AG)

ShayLe Stewart