| OU 325 | February 18, 1997 |
The outlook for 1997 is for better prices and a strong demand for beef.
Cow-calf producers reacted to large negative returns in 1996 by significantly
reduced their cow herds. Feedlots have reacted to the high price of corn in
1996 by moving finished cattle out at lower weights. This has significantly
helped minimize the expected glut of beef on the market. The 1997 outlook
expects this trend to continue. The industry will capitalize on smaller
cattle inventories, a larger 1996/97 corn crop and the resulting lower corn
price and continued strong demand for beef. The net effect is that Carolina
calf producers can expect the 1997 market to bring higher prices.
Cows: Liquidation to Continue
Total U.S. cow slaughter in 1996 was 15% above the 1995 level. Beef cow slaughter averaged 26% over 1995. The 1997 beef cow herd is estimated now to be 34.3 million head, down 3% from 1995. The largest slaughter rates occurred in the southern and southwestern tier of states where severe drought and high feed prices accelerated the liquidation process.
Cow slaughter rates for 1997 will again remain higher than normal, but lower than the 1996 level. Southern states' slaughter levels will abate. However, the cow slaughter rate in the north central states will be larger than normal due to poor winter weather conditions, an increase in the number of open cows and a higher than expected calf death loss.
Fed-Cattle
The fed-cattle segment of the beef industry will continue to provide abundant supplies of finished cattle this winter. However, spring supplies will decline. Lighter slaughter weights, a lower level of cow slaughter than witnessed in 1996 and the seasonally improving demand for beef will improve fed prices, possibly reaching the upper $60's by springtime.
But, fed cattle prices will decline this summer as beef supplies increase
once again. Larger 1996/97 winter placements will cause beef supplies to
reach historically high levels this summer. This level of beef supply will
cause fed cattle prices to retrench into the mid to low $60's in order to move
these large supplies.
Corn
USDA's last report placed corn stocks at 6.9 million bushels, up 13% from
last year. The "usage rate" (corn use as a percent of available supply)
declined from 32% in 1995 to 29% in the fall quarter of 1996. This 29%, usage
rate is, by historical standards, still very high, which makes stocks very
low. Food and industrial users, primarily the ethanol industry, are placing
heavy demands on the 1996/97 corn crop. This demand plus an increased number
of cattle on feed will keep the corn usage rate at a very high level
throughout much of 1997. The net effect of this continued strong demand for
corn stocks is that corn prices will increase modestly this spring. Any
decline in 1997 corn prices will come from anticipated increases in 1997
planted corn acres and a higher production this fall.
Calves
Calf prices have increased nicely this winter. Light weight calves (400- 500) increased by $12/cwt. and feeder calves (700+) have increased by $6/cwt. since December 1995. Calf prices especially the lighter weight calves, have increased as wheat pasture and summer grass demand strengthened. Light weight calf prices in the southeast have been severely discounted compared to other areas of the country. This slight increase in price is a nice adjustment to help get our prices in line with the rest of the calf producing areas of the country. But even with improving corn prices in 1997 this "bargain basement" attitude about southern calves will likely keep late winter and spring average prices below the $75/cwt. level for 400 to 500 pound calves.
The nearby futures quotes for feeder cattle (March) is trading near
$68/cwt. while fall (November) 1997 feeder cattle futures are trading in the
$75/cwt. range. This suggests that the market believes those feeder cattle
prices will strengthen throughout the year. If the futures market is correct
in predicting the fall price for feeder cattle and the 1997 corn crop reaches
anticipated production levels South Carolina calf producers have the potential
of seeing between $75 - $80/cwt. for 400 to 500 pound calves this fall.
