Feedlots cut cattle purchases 10% as corn surges

U.S. feedlots bought 10% 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 (Aug. 17) in a report.

Ten analysts surveyed by Bloomberg News projected a 9.1% drop, on average. The feedlot herd totaled 10.656 million head as of Aug. 1, up 0.7% from a year earlier. Analysts expected a 0.8% increase.

The price of corn, the main ingredient in livestock feed, has surged 60% 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, said Rich Nelson, the director of research for Allendale Inc. in McHenry, Ill.

Feedlot purchases in July 2011 were the highest for the month since the government began tracking the data in 1996.

“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 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% from a year earlier, the USDA said. Analysts expected a 1.2% gain, on average.

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

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