OU 352

January 7, 2000

THE FIRST GUESS OF THE NEW MILLENNIUM
P.J. Rathwell, Extension Ag. Economist

The new millennium is here and it looks like the cattle business survived the Y2K bug. This new millennium will also bring about changes in this industry. Record beef production levels are projected to decline in 2000 for the first time in three years. Winter quarter fed-cattle supplies will approach 1999 levels --- by the spring quarter heavy carcass weights will decline and the number of animals on feed will be smaller. These factors will lead the industry into smaller overall beef supplies for the start of the new millennium.

The fall of 1999 saw feedlot placement levels higher than 1999's level (Table 1). Total placements were 9 percent higher in October and 5 percent higher in November. Placement numbers show that during these months that a substantial number of cattle placed were in lightweight categories. Lightweight classes were as much as 30 percent over the 1998 placement levels. It is the animals in the lighter weight classes that will continue the larger late winter and early spring beef production levels.

TABLE 1.

Once through the winter period beef production should decline. Smaller available supplies from a smaller national calf crop and lighter out-weights (from lighter placed cattle) should help moderate overall beef supplies in 2000. Cattle-Fax has calculated that during the last 10 years, beef production has had a 30 million pound average decline per week from January to April. This year's decline is projected to approach 45 million pounds per week. This decline should be sufficient to support winter fed cattle prices in the high sixties with potentially higher fed cattle prices in the spring. Fed cattle futures prices are suggesting high sixties to low seventies in the winter and spring, respectively.

The fed market has also affected feeder cattle and stocker cattle prices. Feeder and calf prices increased nicely during the late fall of 1999. Carolina 500 pound calf price increased by $20 per cwt over 1998 price levels. Our prices were strongly affected by positive feeding margins due to lower corn prices. Feedlots with positive margins will bid up the price of feeders and stockers in anticipation of continued profits.

These price levels are expected to stay high over the winter and through the spring of 2000. Cattle-Fax predicts that feeder cattle prices will average 118% to 119% of fed prices during 2000. This is a $13 to $14 per cwt. average above fed-steer prices. During the last cycle peak in 1991, feeder-steer prices averaged $12 per cwt. or 116% above fed-cattle prices. The old run of thumb is that a strong "negative price margin" between fed and feeder prices is about $10 per cwt. (NOTE: This also means that large early winter-fed supplies and the resulting lower fed cattle prices during this time will likely cause feeder prices to decline---but the negative between fed and feeder cattle margin should remain constant).

How do feeder prices relate to stocker prices? In the Carolinas 500-pound stocker calves typically are priced between $8 and $10 dollars above 750 feeder cattle prices. Late December 1999 prices from SC auctions indicate that lightweight calves are at a $16 premium to these feeder weight cattle. The Chicago Mercantile feeder cattle futures contract for January is trading at $84.90; the April contract is $85.05. If the typical feeder-stocker relationship occurs this year it suggests that the spring price for 500 weight calves will have substantial support at $95 hundredweight.

The "cloud on the horizon" for 2000 is the weather. Exceptionally mild and dry weather is occurring across much of the country (The La Nina affect). These conditions are expected to continue through the spring of 2000. Weather conditions in the southeast and our market areas of the Southern Plains and mid-west are expected to be hot and dry. This suggests adverse winter grazing conditions in the major winter wheat producing states. Southern cattle producers are likely to be facing a dry summer with limited soil moisture reserves. The worst could be another drought in the Southeast.

SUMMARY

Smaller feedlot inventories and strong feedlot margins will set the tone for strong feeder and stocker prices in 2000. Heavy winter fed-cattle supplies will give way to smaller spring beef production levels. But, a smaller calf crop and continued cheap corn coupled with an improved feedlot situation will support lightweight calf prices in the fall of 2000. Five weight calves without a drought should be supported in the mid $90 range most of this year.

THE CLEMSON UNIVERSITY COOPERATIVE EXTENSION SERVICE OFFERS ITS PROGRAMS TO PEOPLE OF ALL AGES, REGARDLESS OF RACE, COLOR, SEX, RELIGION, NATIONAL ORIGIN, OR HANDICAP AND IS AN EQUAL OPPORTUNITY EMPLOYER.
COOPERATIVE EXTENSION WORK IN AGRICULTURE AND HOME ECONOMICS--STATE OF SOUTH CAROLINA, CLEMSON UNIVERSITY, U.S. DEPARTMENT OF AGRICULTURE, AND SOUTH CAROLINA COUNTIES COOPERATING.

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