April 23, 2001
CATTLE MARKET HAS OVERCOME SOME
Despite concerns over a slow growth
economy and abundant media attention given to cattle diseases
in Europe, cattle prices have had a good year so far. As the first
third of the year is nearing completion, choice cattle prices
have averaged $79.20 compared with About $70 for the same period
last year. The primary reason for such a strong market price has
been reduced beef supplies which are down over 7 percent. The
reduction in supply is composed of 6 percent fewer head coming
to market and 1 percent lower market weights.
Retail consumers have felt the impact
of higher retail prices, and so far have not backed down from
enjoying their beef. Retail prices in the first quarter were at
record high levels of $3.30 per pound. This is in contrast with
the average price in the first quarter a year ago of $2.95 a pound,
and a 2000 yearly average of $3.06. Concerns about a slow growth
economy and some reduction in consumer confidence seems to have
had only small impacts on beef consumption. This is likely because
employment levels are still high at 4.3 percent, and thus most
consumers still have strong buying power.
Also the issue of Foot and Mouth
Disease (FMD) has likely been somewhat positive for U.S. producers.
While most of the media attention has been given to FMD in Europe,
the U.S. has not been importing any beef from Europe since the
outbreak of Mad Cow Disease. The larger uncertainties in the U.S.
have been whether the media attention given to Mad Cow and FMD
would have negative impacts on meat consumption here. Thankfully
for beef producers, the answer seems to suggest that U.S. consumption,
in general, has not been negatively impact, and that consumers
have correctly received the message that the problem is "over
In trade, FMD may have helped the
U.S. industry somewhat. We have been importing a small amount
of beef from Argentina, and thus their break with FMD means those
imports have been curtailed. In the year 2000, we imported 131
million pounds of beef from Argentina. While this sounds like
a huge amount, it is dwarfed by the 2.6 billion pounds imported
from the combination of our three largest sources, Australia,
Canada, and New Zealand. In fact, imports from Argentina represented
only about .5 percent of our domestic production, and thus the
enhancement in domestic prices due to reduced imports from Argentina
would be less than $1 per live hundredweight. On the export side
of trade, initial readings from early in the year, were still
not showing much improvement. However, trade data releases lag
about 2 months, and the FMD issue in Europe did not begin until
late February. Thus, some evidence of improved exports is likely
in coming months.
The latest Cattle On Feed report
shows that the number of cattle on feed is 3 percent higher than
last year. Placements during March were down 11 percent, and the
number marketed during March was down 9 percent. Relative to expectations,
placements were higher and marketings lower than expected.
Cow slaughter has been high this year. It is interesting to note
that the number of cows and bulls on feed were up 40 percent from
last year at this time. The difficult winter weather, high priced
hay on the plains, and high cull cow values resulted in a high
rate of cow slaughter this past winter, as some of the cows were
just too valuable to keep. In addition, beef producers are retaining
about 2 percent more heifers for replacements, and the dairy industry
1 percent more, also decreasing the slaughter pool.
Cattle prices will be influenced
by continued short supplies for the remained of 2001,as they are
expected to be reduced by 4-5 percent for the remainder of the
year. However, choice steer prices will likely weaken from their
spring highs near $80s. Typically, prices weaken from mid-April
through most of the summer. This means that choice steer prices
could drop to the low $70 by the end of the summer. However, anticipated
economic recovery in the last-half of the year and a 6 percent
reduction in supplies in the final quarter of the year should
bring a return of strong cattle prices, with prospects for choice
steers to return to the mid-to-higher $70s.
Given a 1 percent smaller beef cow
inventory and an unchanged dairy cow count, this year's calf crop
will likely be modestly smaller again. With prospects for a continuation
of relatively low priced feed grains, and cheap soyprotein, calf
and feeder cattle are expected to average $2 to $6 higher this
year than last year. Oklahoma City 500-550 pound steer calves
averaged $1.02 per pound last year, and 750 to 800 pound feeder
steers averaged $86 per live hundredweight. Thus calves could
average $1.04 to $1.08 this year, and feeder cattle in the higher
$80 to low $90. Calf prices in the eastern corn belt tend to run
3-5 cents/lb. under those of Oklahoma City.
At this point in the year, the cattle
market has demonstrated an ability to shrug off the slow growth
economy, as well as Mad Cow and FMD in Europe. Each of these were
large uncertainties. With a potential for an improving economy
in the second-half of the year and no evidence of loss of U.S.
consumer demand from media accounts of Mad Cow and FMD, the rest
of the year appears to be bright for the cattle industry.
Issued by Chris