October 2002
Cattle price prospects are shining a bit brighter after
the September Cattle on Feed report which indicated that the number of cattle
in feedlots was down 6% on October 1. After a year of larger cattle slaughter
and heavy weights, some moderation in the slaughter runs can be anticipated
by early 2003. Cattle on feed numbers have now been 5% to 7% below year-earlier
levels since July. This means that supplies of slaughter cattle will likely
begin to drop in early 2003 and will continue to be smaller through next
year.
Prior to the report, there was an anticipation that the number of cattle
placed in September would be up by 11%. However, placements were only
up 2%. In addition,
September marketings at 2% higher than last year were also greater than
pre-report anticipations. Other encouraging information from the report
was that placements
of heavy weight cattle were down. As an example, September placements
of 800 pound and heavier cattle were down 16%, indicating a potential
gap in
fed
supplies in the first quarter of 2003.
The number on feed is lower in areas more severely impact by drought,
and higher in areas with normal or high corn yields. Drought impact
states with
fewer cattle on feed include Idaho, Kansas, Oklahoma, and Texas. Iowa
with an excellent corn crop, has more cattle on feed.
So far this year beef production has been up 3.8%. This is composed
of about 1 higher marketings, but nearly 3% greater weights. In the
third
quarter,
total production was up sharply by 5.6%, with the head count up about
3.1% and weights up by 2.5%. In the third quarter, dairy cow slaughter
was up
about 11% indicating a relatively quick reaction by the dairy industry
to rising
feed prices and low milk prices. This means that dairy cow numbers
will likely be down a few percentage points in the January inventory report.
Beef cow
slaughter was up only 1% in the summer as cows from drought areas
in
the western plains and mountain states were primarily moved further
east to
pasture rather
than heading to slaughter.
Weights remain the thorn in the side of the industry. After September
11, 2001 the rapid drop in finished cattle prices caused feedlot
managers to
withhold cattle in the first seven weeks after the event. By the
end of 2001, weights
had risen by about 3% and continued to rise into March 2002 when
they reach 5% greater. During the coming year, weights are expected to
moderate with
higher feed prices and stronger fed cattle prices. However, weights
may not come down to year-earlier levels until next spring.
With the large beef supplies this year, prices have been disappointing.
In the first three quarters of 2002, prices for Nebraska choice
steers have averaged
$66.35 per hundredweight, compared with $74.83 for the first three
quarters of 2001. This means that prices have dropped about 3%
for each 1% change
in beef supplies, a large drop in prices given the supply change.
Live cattle futures markets are currently several dollars ahead
of cash prices. This report will provide incentives for futures
to move
even
higher, and cash
prices are likely to follow at least in the short-run. Finished
cattle prices should push upward into the higher $60s into November
and perhaps
to near
$70 by the end of the year. Further strength is now expected
early in 2003 as beef production finally begins to decline with prices
reaching the mid-$70s
by late March or early April. Supplies are expected to remain
about 2% to 3% below year earlier levels for the remainder of
2003 with
prices
in the
summer continuing to average in the low to mid-$70s.
For the year of 2003, beef supplies are expected to drop by
about 3%, pork supplies are also expected to be down by 2%,
and total
poultry supplies may rise by less than 2%. Thus, 2003 appears
to be a year
of
recovering
prices
and much better profit prospects for livestock producers.
The depressed live cattle market and higher feed costs also
took a toll on feeder and calf prices. In the first three
quarters of 2002,
750
to 800 pound
feeder steers at Oklahoma City averaged only $79, a full
$10 below
the same period in 2001. For calves, the decline was even
more severe. The
500 to
550 pound steer calves averaged $94 per hundredweight, $12
below the same period
in 2001. Improved finished cattle prices are expected to
be supportive to feeder cattle prices averaging in the low $80s
in the last
quarter of 2002
in Oklahoma City, and improving to the mid-to-higher $80s
by spring. Steer calf prices are expected to average in
the higher
$90s in
late 2003, before
moving upward to the $103 to $105 range in the spring at
Oklahoma City. Prices in the Eastern Corn Belt tend to be about $3
to $5 below Oklahoma
City.
By the fall of 2003, strong finished cattle prices, and
the potential for moderating feed costs both point to
even stronger
calf and
feeder prices.
Thus, maintaining brood cow numbers, or even moderate
expansion, seems to be the most favorable management strategy.
Chris
Hurt
October 1, 2002
Purdue University
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