| MMM 336 |
July 23, 1998 |
Total cattle numbers have declined for the third consecutive year. The July 1, 1998 USDA estimate indicates cattle numbers at 107 million head, down 2 percent from the July 1, 1997 estimate. This estimate is about five million head below the 1996 cycle high.
Heifers as a percent of feedlot placements remain at record levels. The July estimate indicates that beef heifer retention for breeding purposes is down 6 percent in 1998. Continued liquidation of heifers suggests that the downsizing of the US beef cowherd still is continuing. There is little indication that US farmers and ranchers are starting to rebuild breeding stocks in 1998.
The number of cattle in feedlots remains at near record levels. A record-large backlog of very heavy fat cattle existed throughout the first half of the year. This large feedlot inventory coupled with large heifer placements will continue to assure burdensome supplies of beef during most of 1998. Record-large carryover supplies and carcass weights have cost the industry about $3/cwt. on all fed cattle sold year-to-date.
RECORD TOTAL MEAT SUPPLIES
Total meat supplies have increased 4 percent from last year's levels. Record-heavy carcass weights have inflated beef production. Large production levels, above 500 million pounds per week, will continue through September due to large spring cattle placement levels, cheap feed and a soft feedlot bargaining position. Competition from other meat producers is also increasing. Pork production jumped nearly 11 percent within their market, during the first half of 1998. Total poultry production climbed 2 percent.
USDA=s Cattle on Feed report for July 1998 showed large placements of heavier cattle into feedlots during June. Marketings of cattle were down consequently; more cattle are in feedlots than this time last year. This suggests that beef production levels will not be curtailed as much as previously anticipated.
CORN OUTLOOK
Bearish supply and demand fundamentals should continue to pressure corn prices. Corn stocks on June 1 showed the impact of a stagnant overseas demand for corn. Expect corn prices to be near $2.00 per bushel, Midwest on-farm basis, in the fall; $2.60-$2.80 S.C. price to cattle producers. The availability of ample of feed wheat will also add to the 1998 overall feed supplies. Add in the potential of another large corn crop and total feed supplies should be more than adequate this year. Midwestern corn supplies will easily offset southern drought-reduced corn production.
ASIAN IMPACT SIGNIFICANT
The "Asian Flu" has had a major impact on the US beef industry. This crisis will be with the region for some time to come. Beef exports, on a pound basis, are expected to increase, four to six percent more than 1997 levels. Exports to Korea, Taiwan, the Philippines and Indonesia will be down, while Japanese purchases should rise slightly. Hide and offal values have struggled all year, due mainly to lost Asian demand. The hid and offal devaluation has reduced fed-cattle prices by $2/cwt. year-to-date.
Beef imports have increased, due to the strong US dollar and declining domestic cow slaughter, and imports are expecting to increase 12 to 15 percent this year. Most of this import will be in trimmings and manufacture supplies. Increased cow slaughter might occur in the last half of 1998 if the Southern drought continues to force herd liquidation.
SUMMARY
The beef industry is in a short-term crunch. Burdensome supplies of fed cattle, large supplies of competing meats, unclear market direction and lackluster exports are slowing industry expansion. Earlier prediction of a strong fall market is slipping away. The long-term outlook for cattle is much brighter. Lower herd numbers spell smaller supplies, higher prices and profits.
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