UPDATE 1-US cattle placements slip in May amid higher feed costs

Fri Jun 21, 2013 5:35pm EDT

* June 1 feedlot cattle supply drops 3 pct year-over-year
    * May placements down 2 pct from last year, above forecasts
    * Marketings in May down 3 pct from yr ago, below forecasts
    * Report viewed mildly bearish for cattle futures on Monday

 (Adds background and analysts' comments)
    By Theopolis Waters
    CHICAGO, June 21 (Reuters) - The flow of young cattle into
U.S. feedlots dropped by a smaller-than-expected 2 percent last
month, according to a government report on Friday, a decline
that analysts attributed to higher feed costs that discouraged
fattening cattle for slaughter.
    The U.S. Department of Agriculture on Friday reported May
placements at 2.049 million head, down 2 percent from 2.084
million a year earlier. Analysts, on average, had expected a 5
percent decline.
    "More cattle were moved into feedyards than expected,
suggesting pasture quality wasn't back up to snuff as some had
thought," Allendale Inc chief strategist Rich Nelson
    Prior to the report, analysts had said abundant spring rains
had rejuvenated pastures and ranchers likely grazed many of
their feeder cattle instead of shipping them to feedlots.
    Nelson said this year's May placements compare with much
higher placements a year ago. Last year's historic drought
damaged pastures and forced cattle into feedlots.
    Dan Vaught, a Doane Advisory Services economist, also
attributed May's smaller-than-anticipated placements to ranchers
holding back younger cattle as their value declined.
    "As much as anything else, it was the relative decline in
feeder cattle prices. They were sky high a year ago and backed
off quite a bit this spring," said Vaught.
    Based on Friday's USDA report, cattle numbers could decline
less than expected later this year. But that does not change the
outlook for beef prices, which should remain high because of the
smaller cattle supply, said analysts and economists.
    Monthly government retail price data showed the average beef
price in May at $5.24 per lb, down from March's all-time high of
$5.30 per lb but up from $4.97 a year ago.
    USDA on Friday put the June 1 feedlot cattle supply at
10.736 million head, or 97 percent of the year earlier. Analysts
polled by Reuters, on average, expected 96.3 percent.
    Also the government said the number of cattle sold to
packers, or marketings, in May was down 3 percent from a year
earlier at 1.948 million head versus the forecast for a 2
percent decrease.
    USDA said the May marketings were the second lowest for that
month since the reporting series began in 1996.
    Fewer market-ready cattle reduced marketings to beef
packers, even though May 2013 had the same number of marketing
days as May 2012, analysts said.
    The larger-than-expected placements and smaller marketings
could be mildly bearish for live cattle futures early on Monday
at the Chicago Mercantile Exchange, analysts said.
    But, the futures' sharp rally on Friday,
stronger-than-expected cash cattle prices, and firmer wholesale
beef values may offset pressure from USDA's report.
    "I don't think the deviations are big enough to mean a whole
lot to the market. We had a good week in the cattle futures,"
said University of Missouri livestock economist Ron Plain.
    "We (futures) may give a bit of that back on Monday but I
don't see that big of a shock from the report numbers," he said.
    Prior to the report, CME June live cattle closed up
1.300 cents on Friday at 121.250 cents per lb and August 
up 1.600 at 121.600. 
    

 (Additional reporting by Michael Hirtzer; Editing by Bob
Burgdorfer)