Cattle numbers are down and supplies are tight. Everyone knew that. What surprised most Friday was just how tight it has become.

According to the latest Cattle on Feed Report, March placements are only 3% more than a year earlier—most pre-report estimates were expecting 4-6% more. Likewise, marketings last month were 4% higher than a year earlier—pre-release estimates hovered around 4.5% to 5.0%. Cattle on Feed as of April 1 (10.8 million head) was 3.5% below last year; about 0.5-1.0% less than estimates

“There is no doubt that the latest USDA Cattle on Feed report will cause a market reaction,” explains Derrell Peel, Oklahoma State University (OSU) Extension livestock marketing specialist Friday. “After four months of lower placements, year over year, the trade was expecting a large increase in feedlot placements in March. The recent run up in feeder cattle prices suggests that demand for feeder cattle has been strong and a couple of months of limited feedlot profitability (after many months of losses) provided the motive.”

However, there was a wide variation in regional placement patterns and the resulting average was not only lower than expected but lower than the lowest pre-report estimate, he said. “The resulting level of 103% March placements does not even cover the fact that there was an additional business day in March. In short, there was no increase in March placements this year.”

Besides numbers, analysts with the CME Group Daily Livestock Report pointed out yesterday that placement weights are also bullish. “This year’s average of 702.8 lbs., was 10.7 lbs. lower than the 5-year average and nearly 18 lbs. lower than one year ago. In addition, this year marks the first that we could find (our placement weight data go back to 1996) in which the average placement weight in March was lower than that of February,” explain the analysts.

“This year’s 5.1-lb. decline compares to an average increase of 9.6 lbs. from February to March for 1996 through 2009. The decline is likely due to harsh winter weather that slowed gains on wheat pasture and grass. The big driver was a decline of 85,000 head (15%) in the number of cattle weighing 800 lbs. and over. In addition, placements of cattle weighing under 600 lbs. were up 90,000 head or 29.5% for the month. These weights plus gains of roughly $6/cwt. and $10/cwt. for yearling steer and steer calf prices, respectively, during March point to a real scramble for feeder cattle — a scramble that is not likely over.”

All told, early auction prices for stocker and feeder cattle was steady to lower last week, but they strengthened as the week wore on. Given the strength of the cattle futures markets last week, cash fed cattle trade was lackluster, with Southern Plains prices steady and prices in parts of the North steady to $1 lower. This week should be more positive. Feeder and Live Cattle futures were trading modestly higher through yesterday morning.

Back to Friday’s Cattle on Feed Report, Peel explained in the recent OSU Cow-Calf Corner, “Feedlot placements have relatively little to do with current fed cattle markets (which are strong for other reasons) but lots to do with fed cattle markets in the future. Not only was the level of placements lower than expected but most of the increase was in lightweight feeders that will finish in September and October.”

This should moderate some of the concerns about summer market pressure. “Obviously we are still assessing beef demand recovery but it appears that supply fundamentals have a lot of momentum going forward. Having said that, there will likely be some relative increases in placements in April and May with cattle coming off of grazeout wheat. If it has any impacts it will be in short term timing of marketings in the fourth quarter, but it does not change the fact that total feeder supplies are and will remain very tight.”

Analysts with the Agricultural Marketing Service (AMS) said Friday, “Wholesale beef cutouts and pork cutouts are on sharp up-trends as tighter-than-expected hog numbers have pork in very good demand. This hasn’t hurt the value of beef as beef and pork cutouts are nearing all-time highs. We have watched these unusually high markets rise quickly over the last couple of months…ample supplies and a down economy followed by a long, harsh, cold winter, very muddy conditions, and lower cow numbers has set up a remarkable recovery in the livestock markets.”

According to the folks at AMS, “One point of caution on this roller-coaster is at the meat counter: will these high prices sustain or will the consumer resist?”

You can find yesterday’s CME Group Daily Livestock Report here www.dailylivestockreport.com/documents/dlr%204-26-2010.pdf

This is the most recent Cow-Calf Corner: cowcalfcorner.okstate.edu/Newsletter.htm

The summary below reflects the week ended April 23 for Medium and Large 1 – 500- to 550-lb., 600- to 650-lb. (calves), and 700- to 750-lb. feeder heifers and steers (unless otherwise noted). The list is arranged in descending order by auction volume and represents sales reported in the weekly USDA National Feeder and Stocker Cattle Summary:

^* Plus #2
^** None reported of the same quality at this weight or near weight
^(***) Steers and bulls
^(?) As reported, but questionable
^NDNo Description
¹500-600 lbs.
²550-600 lbs.
³600-700 lbs.
⁴650-700 lbs.
⁵700-800 lbs.
⁶750-800 lbs.
⁷800-850 lbs.
⁸850-900 lbs.