| OU 345 | July 30, 1999 |
USDA's July 1, 1999 inventory estimates confirm that the cattle herd is continuing
to decline. Since the July 1, 1995 estimate cattle numbers have decreased by
6.2 million head. Beef cow numbers are estimated to be 34.1 million head down
from the cycle high of million head. Beef replacement heifers are estimated
to be 4.8 million head in 1999. This is the smallest replacement number since
1989 and a 19 percent reduction from the cycle high in 1994. This indicates
that expansion plans by cow/calf producers are still on hold.
This means smaller supplies of feeder cattle and calves available for placement
into feedlots this year and into the future. The calf crop is now 30.8 million
head down from the cycle high of 40.5 million head. Competition for these smaller
supplies will help support calf prices over the next few years.
In fact, calf prices have stayed up longer this year than in recent history (Figure 1). Four to five weight feeder calves have traded around $85 per cwt. in the Carolina's for most of 1999. This $400 per head sales value should mean a small profit for most Carolina cow/calf producers. Low corn prices and expansion in the feeding industry's pen capacity have continued to support feeder cattle and calf prices in 1999. This support should continue in the long-term.
The short-term
still has its problems. Cattle on feed numbers on July 1, 1999 total 9.56 million
head the largest mid-year total in more than five years. Cheap corn and the
resulting heavy carcass weights only make these supply numbers more burdensome.
Beef production will remain at record levels for the rest of 1999.
Feedlot marketings have improved this year over 1998's levels. June cattle
sales were 105 percent of 1998. This year's marketing trend is positive, but
feedlot marketings must remain aggressive to keep weights in check and continue
to move these burdensome supplies through the market channel.
Pork production also remains at historic highs despite the USDA's hogs and pigs report estimate of smaller supplies. The quarterly USDA report pegged hog inventories on June 1 at 60.5 million head, 3 percent smaller than in 1998. Hog slaughter is expected to remain large throughout the summer and fall. Record corn production and the resulting lower corn price expectations will keep hog production up. Smaller supplies will not affect the market until early 2000.
Prices for feeder cattle and calves have shown good support through the early
summer of 1999. July prices for Carolina 400-500 weight steer calves are above
$85 per cwt., $15 per cwt. above this time last year. Lightweight calves are
$20 per cwt. above July 1998 prices levels. Heavier calves are as much as $10
per cwt. above July 1998.
Will these prices remain into the fall months? The futures market (late July)
is projecting fall prices for feeder cattle (750-pound) to be $77.90 in October.
This equates to between $82 and $86 per cwt. on a historical basis for 500-pound
calves in the Carolina's. The new Chicago Mercantile Exchange Stocker Calf contract
(for 500-599 pound calves) is trading at $88.30 for October delivery. The estimated
basis for this new "stocker calf contract" is about $3-$4 per cwt. Hence both
the feeder cattle and stocker calf futures contracts are suggesting an October
market price near the mid-eighties for 500-pound calves this fall.
Fall marketing options should be on the minds of Carolina cattlemen today.
Producers need to be evaluating the sale of calves or retained ownership? It
is time to coordinate production decisions with marketing alternatives. Check
out feed and pasture sources, plant small grains or consider overseeding pastures
for winter grazing. Good managers make good marketing opportunities. Don't let
the market control you----you can control the market if you take the time to
develop a marketing strategy.
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