Commercial feedlots are fattening more cattle than expected, sparking concerns about an oversupply of beef next year.
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The U.S. Department of Agriculture said on Friday that the number of cattle placed in feedlots for fattening in November rose 14% from the same time last year to 2.1 million head. That was well above average pre-report estimate of 6% and above the high range of expectations.
Drought-like conditions in the Great Plains prompted ranchers to offload more young cattle from their pastures to feedlots, analysts said, swelling supplies. The total number of cattle on-feed on Dec. 1 rose to 11.5 million head, according to the USDA, up 8% from a year earlier and also above expectations. The number of cattle marketed, or sent to slaughter, was in line with expectations at 3%.
A higher placement than marketing rate could mean a buildup of slaughter-ready cattle supplies, said Craig VanDyke of Top Third Ag Marketing in Chicago.
The marketing number "doesn't really help offset what we're putting into the yards," Mr. VanDyke said. "The last few months have had bearish reports but this one really hits the market pretty hard."
The November placement figure was the largest in 10 years, said Rich Nelson, chief strategist at brokerage Allendale Inc. The rate of cattle placements has consistently exceeded expectations in recent months, setting up traders for an uptick in cattle supplies early next year. That's expected to pressure physical cattle and futures prices when those animals begin to reach their requisite slaughter weights.
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Cattle futures were mostly lower in the wake of the report. December-dated live cattle contracts rose 0.2% to $1.198 a pound at the Chicago Mercantile Exchange on Friday, while later-month contracts fell. CME January feeder cattle futures fell 0.8% to $1.418 a pound.
In a separate report, the USDA said that stocks of beef in commercial freezers fell. Total frozen beef supplies of 486.9 million pounds on Nov. 30 were down 4% from the previous month and 8% from the same time last year.
The drop in beef stocks was larger than expected, Mr. Nelson said, in part a result of a November push by retailers to promote beef cuts to consumers at discounted prices. But demand has since eased, analysts say, in keeping with seasonal tendencies. That has weighed on the cattle market in December.
The USDA said that the national hog herd, meanwhile, rose to 73.2 million head on Dec. 1, 2% higher than a year earlier and in line with expectations.
Hogs kept for breeding, an indication of anticipated supply growth, rose 1% from a year earlier. Hogs kept for market, or slaughter, rose 2%. The market hog inventory was a quarterly record, coming amid growing US slaughter capacity.
The agency also said that producers intend to continue expanding, preparing their sows to give birth to more piglets in the first half of 2018 than the previous year.
"We're still in the expansion period," Mr. Nelson said.
Frozen pork supplies also fell in November from the previous month and previous year, a product of strong demand.
Hog futures bounced after the report. CME February lean hog contracts rose 2.1% to 70.025 cents a pound.
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(END) Dow Jones Newswires
December 22, 2017 14:50 ET (19:50 GMT)