October 2000
Even with a less than bullish October Cattle On Feed report, finished cattle
prices are expected to continue to improve this fall and into next spring.
The October report said that the number of cattle in feedlots was 7% above
last year's level, which would indicate that beef supplies will likely remain
at, or slightly above year-ago levels for the rest of this year. After months
of large losses it was anticipated that cattle finishers would place considerably
fewer cattle into feedlots during the month of September. In addition, improvements
in some pastures were felt to encourage more calves to stay on grass rather
than moving to feedlots.
Placements were down by 3%, not nearly as much
as was anticipated. Marketings on the other hand were up 2% which was
larger
than pre-report guesses.
In terms of gender, steer calves on-feed were up 6% from last year, but
heifer calves were up 9%. The higher percentage of increase of heifer
calves continues
to provide evidence that brood cow producers are not yet making a move
to expand the cow herd through heifer retention, but rather are selling
them
to backgrounders or feeders.
There was some regional difference in placements. Western states such as
California, Colorado, and Arizona all had sharp increases. However some
of the Plains
states saw declining placements such as Iowa, Kansas, and Nebraska. Improvements
in pasture conditions in the central portion of the country has likely
caused more calves to stay on pasture rather than move to feedlots.
One of the most important points to glean from the report was that placements
of heavier weight cattle were off sharply. For example the number of
cattle weighting 800 pounds or more was down 24% from September of 1999,
and
those weighting 700 to 799 pounds was down 10% from last year. This
is a strong
indication that there are sharply fewer yearling cattle available for
feedlot placement. The reduced number is because many of these animals
were already
placed in feedlots earlier in the year at lighter weights. The lack
of heavy weight placements means somewhat smaller supplies of fed cattle
in the first-quarter
of 2001.
Weights have remained the thorn in the side of even higher cattle prices
as the number of cattle headed to slaughter began to drop in August.
Weights crept higher through the late summer and into this fall. In
mid-summer
the average liveweight was about 1210 pounds, but has moved up to
1235 pounds
this fall.
Increasing weights are often a sign that cattle marketings
have been delayed. The cleaning-up of front-end supplies will be
necessary for
further price improvement. The small number of placements in the
800 pound plus range is an indication that the large supplies of heavyweight
cattle
could be cleared up by the end of the year.
Cattle supples in the final quarter of 2000 are expected to be close
to unchanged from the same period last year. However in the first
quarter, supplies are
expected to drop 2% to 3% with a similar decrease in the second
quarter.
Beef supplies in October have been running about 1% above year-previous
levels with choice steer prices about $2 lower. Assuming supplies
are near unchanged
for the final quarter, this means that choice steer prices would
strengthen to near $70 by the end of the year. With some reduction
in first quarter
supplies, prices would be expected to move upward to an average
in the very low $70
for the quarter, with late March and April spring highs perhaps
reaching the $75 to $77 level.
Talk of the potential for $80 cattle next spring is premature.
On-feed numbers and placements of young cattle that will come
to market
next spring remain
high. In addition, moderate priced feed will continue to stimulate
heavy weights through this winter and next spring, plus pork
supplies are
expected to begin
expanding by the second quarter of 2001.
The possibility of reaching the $80 level next spring would
be greatly enhanced if brood cow operators begin to retain
heifers for the
expansion of the
herd. At this point, the cattle on-feed report continues to
suggest
that heifers
are headed to the feedlot rather than to the breeding lot.
However, by this winter, improvement in pastures and in calf prices could
move producers
toward a modest expansion.
Strengthening fed cattle prices will likely provide the tone
toward higher prices for feeder cattle and calves over the
next six months.
The three
factors that would seem to have the highest odds of derailing
higher calf prices would
be: stronger than expected feed prices, higher interest
rates, and a less confident consumer due to slowing economic growth.
Chris
Hurt
October 23, 2000
Purdue University
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