| OU 326 | May 28, 1997 |
The Carolina cattle market has significantly improved since the end of 1996. Feeder cattle and calf prices have increased about $20 per cwt since the first of 1997. Light weight calves (400-500 lb) have increased from the mid $60's to near $90 per cwt; 500-600 lbs calves have gone from $60 per cwt to the low $80's per cwt since the first of January. Heifers prices (600-700) also have increased about $15 per cwt, going from the mid $50's to near $70 per cwt in the same time frame. Slaughter cow prices have gone from $30 to $40 per cwt this spring.
This improvement in beef cattle prices was welcomed by all producers. The last few years have been tough on cattle producer's profit margins. What's ahead? Will the rally continue into this fall? Let's take a look at how the industry is progressing this summer and take an early projection about fall prices.
The outlook for corn supplies in 1997 is quite positive compared to the last few years. The 1997 corn crop is forecast today at 9.8 billion bushels, up 6 percent from last year. This will be a near record corn crop if this production level is actually reached. Excellent planting progress has raised yield expectations. Average U.S. yields are projected at 131 bushels per acre. Total corn stocks also will be larger due to an increase carry in from last year's crop. Total usage is expected to increase but, not enough to offset the increased supply leaving 1997 year ending stocks larger than 1996 levels.
This larger supply and moderate increase in demand suggest that corn prices in 1997 will decline below levels experienced in 1996. Corn prices are expected to average $2.25 to $2.65 per bushel this year on farm in the Midwest. This suggest that purchased corn prices to Carolina beef producers will be between $3.00 and $3.25 per bushel. This price is down over a $1.00 per bushel from the high in 1996.
Fed cattle inventories, considered very high in our winter analysis are still burdensome. Lower grain prices and strengthening fed cattle prices have bid record numbers of light weight calves into feedlots for longer feeding periods. This will cause available beef supplies to increase and the need for weekly slaughter rates to rise on a seasonal basis this summer. Slaughter levels will need to be especially high to offset this historically large fed- cattle supplies predicted during May and June. It is more likely, however, that these larger numbers will decrease the "currentness" of the feedlots; resulting in higher carcass out-weights and lower fed cattle prices throughout the summer and into the early fall months.
Fall fed supplies, based upon lighter spring and summer 1997 placements, will be smaller compared to the large summer supplies. Combined with larger marketings this spring and summer these reduced placements will cause inventories to decline this fall and throughout 1998. Placements in 1997 are expected to be one percent below 1996 levels. Placements in 1998 are expected to average two to three percent lower. Positive gains in feedlot margins due to lower corn prices will be partially offset by higher calf prices. In general, fed cattle prices will average in the mid $60's per cwt until the fall then trend upward.
Feeder cattle and calf supplies are expected to average below 1996 levels. Supplies outside feedlots are estimated to be 5 percent below last year's level. A declining cow herd and fewer heifers likely to calve and enter the herd in the first-half of the year are expected to lead to a smaller calf crop in 1997. This reduction in available supplies is also due to smaller imports of calves from Mexico and Canada and a pronounced death loss from the severe winter in the Northern Plains.
The prospects of lower calf inventories this year and next should help support calf prices. Local auction prices for quality light weight calves are currently trading above $80 per cwt for both 400-500 and 500-600 weight classes (400-500 lbs at $89.50/cwt and 500-600 lbs at $81.00/cwt). The October Chicago Mercantile Exchange feeder cattle futures contract is currently trading at $78.10 per cwt. For Carolina beef producers, this implies $82-$85 per cwt for 400-500 pound medium frame No.1 calf and $72 to $75 per cwt for a 500-600 pound calf this fall if historical basis patterns hold. Both current local prices and the futures market seem to indicate that fall calf prices will be substantially above last year. Given these two indicators it is reasonable to expect 400-500 pound calves to be worth $350 to $400 per head this fall. It is also likely that these prices could trend higher if the price of corn continues to fall below USDA's prediction of $2.25 to $2.65 per bushel.
While fed beef production is expected to peak this year, cow slaughter and processed beef levels are expected to decline. Cow slaughter rose 16 percent in 1996, but began to decline in early 1997. Cow slaughter is likely to decline 15 to 20 percent in 1997. The cow herd has been culled hard over the past few years, consequently the demand for good quality replacement females will be very high in 1997 and throughout the rest of the century.
This demand for quality replacement females has already appeared this spring in the Carolinas. Good grass growing conditions, the prospects of lower corn prices and a stronger price for light weight calves are fueling this increased demand for quality replacement females. Young to middle aged cow- calf pairs at South Carolina auctions averaged $490 per pair in January and $632 in April. Medium to large stock cows averaged $374 per head in January and $416 in April. Bred female and cow/calf pair values will peak in late spring and then trend slightly lower through the summer.
The improved demand also is expressed in heifer prices. Yearling heifer prices this year have increased from near $55 per cwt in January to $70 per cwt in late May. With feedlot capacity near record levels this surge in heifer prices must be due to cattlemen's expectations for better calf prices ahead. This brighter outlook for calves will likely generate a broad based demand for females throughout the remainder of the century.
SUMMARY
In summary, the corner has been turned in 1997. Calf prices are improving
and corn prices are falling. Carolina cattle producer's bottom lines will be
greatly improved compared to the last few years. AND, the best is yet to come.
