BEEF CATTLE MARKET UPDATE
P. J. Rathwell, Extension Ag Economist

Feeder and calf prices were severely impacted by the sharp downturn in the fed-cattle market. Feeder cattle prices have declined over $10 since early this year. It took nearly all summer in 2001 for feeder cattle prices to fall this far. The difference between last year and today is that fed cattle have lost about $10 during the last month---with cattle feeders continuing the downward profit spiral started in July of 2001. AND, it certainly appears that the market has lost its optimism for 2002 late summer and fall fed cattle prices.

Last year cattle feeders were paid in the mid $70's for a fall-harvested steer. This fed-cattle price supported a mid to upper $80's feeder cattle price for most of the spring and summer of 2001. This year, the October live cattle futures contract is trading in the mid-$60's, which translates to a low $70's feeder cattle price given current corn prices. The December 2002 futures contract suggests feeder cattle prices might increase $2-$3 dollars per hundredweight.

Poultry and hog supplies also affect beef prices. While we may have avoided one large negative with Russia lifting its ban on poultry imports 2002 pork supplies are still expected to increase by 2 percent. One bright spot will be beef demand. Retailers have found beef to be a very attractive feature item and this should help move large volumes of product through retail markets. We will need a lot of helpful retailers this summer. Bottom line is that fed cattle prices need to stay down to let retailers feature beef and not poultry or pork. It is possible that fed cattle prices will need to dip below $64/cwt. before the summer is over.

The April cattle on feed report shows March marketing levels down 2% and placements up 8% over 2001 levels. Aggressive marketings are a must. If feedlots could increase marketings, this would keep carcass weights down in addition to selling more cattle. The downside of this idea is that fed-cattle prices must be lower for aggressive marketings to work.

What does this mean for cattle prices in the late summer and fall, especially for the Carolina's lighter weight feeder calves? Let's first dig a little deeper into the factors that are causing this pricing problem. Market psychology is playing a major role in the market. BSE and FM rumors have caused sporadic dips in the live-cattle futures market giving rise to overall jittery feelings in the futures market. In addition, summer time typically means fed cattle supplies increase making more animals available for sale. And, carcass weights will remain well above last year's levels. This combination of increased numbers and larger carcasses will guarantee beef production levels larger than 2001.

Over the last few weeks, feeder cattle and calf prices have closely followed the losses in the fed market. As fed values have gone, so have those of the feeder and calf markets. The Chicago Mercantile Exchange Feeder Price Index has declined nearly $10 per cwt. since its high point in January and recently broke the $76/cwt mark for the first time this year. Much of this pressure can be attributed to a large volume of 750 Plus weight cattle available for feedlot placement in February and March. But, negative profit margins in the feedlot also added significantly to low feeder cattle prices.

Market psychology for feeder cattle is also negative. Continued feedlot loss carried over from 2001 into 2002 has eroded the feedlot buyer's capital base necessary to pay good prices for feeder cattle. Consequently, the number of feedlot operators willing and able to buy feeder cattle has declined substantially.

Typically feeder cattle (750 + weight) prices find their lows in late spring before rising again in the summer (large volume of cattle coming off wheat pasture in the spring and a shortage of this weight class in the summer months). Equity losses in the fed cattle market are likely to continue throughout the summer months. It will be hard for feedlots to price cattle to the packer over $70/cwt. Fed cattle priced at this level imply a feeder cattle price limit near $80/cwt. and 400-500 weight calves at $90/cwt. This is a FULL $5/cwt above current local market price levels.

What might modify this fall price projection is that the fall run of calves is still expected to be stable compared to 2001. The key to any movement will be the demand for these calves, which is directly tied to feedlot profitability. If there is any improvement in feedlot prices it will be passed down to the cow-calf level.

In summary, the industry has been drowning in a sea of fat cattle. Droughts and cheap corn continue to put pressure on the industry to feed cattle--and cattle have been placed at lighter weights. Demand for beef is strong and retailers are likely to continue featuring beef throughout the summer. Fall lightweight feeder calf prices will depend significantly on the feedlot's ability to market this glut of cattle and return to a reasonable level of profitability. My guess is that there is probably less than a $5/cwt. improvement in the price a producer might expect for a 400-500 weight calf between now and this fall. There is little chance that we will return to 2000 price levels ($100 plus per cwt. on 5 weight calves) this fall.