US producers placed 4.3% more cattle on feed in May than they did a year ago. The placement numbers came as a surprise for most in the market. 

Of the analysts polled ahead of the report, the highest placement number was calling for a 2.6% increase, but the average expected a y/y decline.  

Why were placements higher despite an ever-shrinking calf crop? And what does this say about herd rebuilding?  

There is little question that there are fewer cattle out there today than a year or two ago. The cow herd is the smallest it has been in 50 years and simple arithmetic tells you that from a smaller cow herd you will get a smaller calf crop.  

At the start of the year, the USDA annual cattle survey implied that the feeder supply (i.e., calves and yearlings outside feedlots) was 4.2% lower than a year ago. Placements of feeders into feedlots since the start of the year are down only 2.5%.. In other words, some of the cattle that probably were not expected to go into feedlots are entering feedlots anyway. 

There is a lot of talk about herd rebuilding, but the placement rate tells you that not much of that is going on. Indeed, cattle sales in the country say as much. During herd rebuilding periods, we see fewer heifers sold through auctions or direct sales. That share of heifers to total sales has averaged around 40% in the past 20 years. During herd rebuilding the share is around 37% to 38%, maybe even lower during certain months.  In May and June, heifers as percent of total sales were 43%, hardly a sign of herd rebuilding. 

But another factor that has bolstered feedlot placements and feedlot inventories overall, is the increase in imports of feeder cattle from Mexico and Canada.  Since the start of the year, feeder cattle imports from both countries (but mostly Mexico) have increased by almost 100k head.  This helps explain a bit why placements have been higher than earlier expected.  But whether those imports are sustained will depend on availability in those two countries as well as things like currency and demand.

What does the increase in placements mean for US beef consumers?  In the short term it means that beef supply may not decline as much as previously feared. Total on feed inventory today as of June 1, 2024, was about the same as June 1, 2023. However, this has been accomplished by delaying herd rebuilding and, in some cases, digging a deeper hole.  Lower beef supply is coming and it will take longer for a sustained supply recovery to take place.