(Adds closing prices and analyst comment starting in seventh paragraph.)
Aug. 23 (Bloomberg) -- U.S. feedlots reduced the number of cattle added to their herds by 10.4 percent in July amid tight animal supplies after the worst drought since the 1930s spurred higher feed costs.
About 1.722 million head of cattle were moved into feedlots last month, down from 1.922 million in July 2012, the U.S. Department of Agriculture said today in a report. Thirteen analysts surveyed by Bloomberg News projected a 1.6 percent drop, on average. The feedlot herd totaled about 10 million as of Aug. 1, down 5.9 percent from a year earlier. Analysts expected a 4.2 percent slump.
The cattle industry still hasn’t recovered from last year’s drought. The cattle herd on July 1 was the smallest for that date since at least 1973, according to the average of four analyst estimates compiled by Bloomberg. U.S. imports of Mexican feeder cattle as of Aug. 10 are down 46 percent this year compared to a year earlier, USDA data show. Lower placements are the result of these tighter numbers, according to Vetterkind Cattle Brokerage.
“I just don’t think the cattle are out there,” Steve Wagner, a market analyst for CHS Hedging Inc. in St. Paul, Minnesota, said in a telephone interview before the report. “Producers are a little bit leery about putting in expensive cattle.”
Feedlot operators typically buy year-old cattle that weigh about 500 pounds (227 kilograms) to 800 pounds, called feeders. The animals are fattened on corn until they weigh about 1,300 pounds, when they are sold to meatpackers.
Feedlots sold about 2 million animals to meatpackers last month, up 4.5 percent from a year earlier, the USDA said. Analysts expected a 4.4 percent gain, on average.
Cattle futures for October delivery fell 0.4 percent to settle at $1.267 a pound at 1 p.m. on the Chicago Mercantile Exchange, extending this year’s slide to 4.2 percent.
Today’s report was bullish for prices, which may open 0.5 cent to 0.7 cent higher on Aug. 26, according to Lane Broadbent, a vice president at KIS Futures Inc.
“The underlying thing is the effects of the drought,” Broadbent said in a telephone interview from Oklahoma City, after the report came out. “We’ve got 10 percent less cattle placed this year than last year. That’s setting itself up for a pretty bullish scenario.”
Feeder-cattle futures for September settlement fell 0.7 percent to $1.5665 a pound. The commodity has gained 1.5 percent this year.
--Editors: Thomas Galatola, Steve Stroth