Given September 11th, Should I Change My Cattle Marketing Strategy?
Cattle prices this Fall were down considerably from a year ago and beef cow producers are concerned. I have received a number of emails and phone calls asking if the beef price cycle has peaked already and are we in for a period of down prices? My response to beef cow producers has been that we need to sort out the impact of beef demand verses the cattle cycle’s supply on cattle prices.
Starting in 1999, we had a dramatic upturn in beef demand and this increased demand has been responsible for the beef price run-up from 1999 through Spring 2001. The drop in beef prices during Fall 2001 has been due to two primary economic forces at work on cattle prices. First, Beef prices were already coming under pressure before September 11th from the extra cattle on feed. Not only were we feeding 1999 calves, many 2000 calves were already in the feedlot – many as calf-feds. There were really no 2000 grass yearling around – those animals were already on feed. This is a normal situation in the turnaround phase of the cattle cycle. As the cyclical annual numbers of feeders start go down, feedlots normally turn to calf-feds for feedlot replacements. They have done that again this cycle.
Second, dressed weights have been climbing and are now at record levels. Dressed weights, as of November 3, 2001 averaged 829 pounds -- up 14% from a year ago. The weights are increasing the number of yield grade 3 and 4 carcasses. A 25 pound increase in slaughter weights is equivalent to appproximately another 5,200 slaughter cattle per week.
Drought in the U.S. has lead to increased number of cattle on feed. Many of these, however, are calf-feds and will be on feed for more days so don’t be mislead by the number of cattle on feed. It is, however, one more factor putting supply pressure on Fall 2001 cattle prices.
Demand is also putting pressure on Fall 2001 cattle prices. Deteriorating beef exports to Japan and South Korea, due to faltering economies, are reducing U.S. beef export demand. If this meat is not exported, it enters the domestic supply. Second, September 11th and its related economic happenings has taken its toll on the U.S. cattle market. We have seen a dramatic drop in U.S. restaurant eating out due to September 11th and this drop in dinning out has taken its toll on domestic demand.
Both the export market and the domestic white table cloth demand are for high valued meats – both lowering the total value of carcass beef. Grinding middle meats into hamburger only drives total carcass value down even more. Currently, decreasing beef demand is also putting pressure on cattle prices.
The good news about beef prices is that the cattle cycle effect has not really kicked in yet but is currently poised to kick in. Beef cow numbers have been decreasing since 1996 and less domestic calves are being born each year. In fact, We are projecting a drop off in slaughter cattle marketings starting in first quarter 2002. Year to date (as of mid November 2001), cattle slaughter is down 3.4 percent and beef production is down 3percent. Decreasing beef cow numbers implies decreasing annual cattle slaughter but with a lag. Slaughter really drops when heifers are diverted from the feedlots to breeding herds.
Beef cow producers have been wanting to hold back more heifers in response to the favorable prices; but, drought throughout much of Cow Country has delayed most expansion plans. For example, North Dakota with more normal rainfall, had a replacement rate exceeding culling rate already in year 2000. Others, in drought regions, are just trying to figure out how to keep the “core” cow herd together.
Rain and green grass is all that is really needed to trigger the cattle cycle expansion phase. Even now, as I drive around the mountain states and the Northern Plains states, I see whole herds of heifers poised to enter the breeding herd if and when prices turn up. Baring any major bio-terrorism, the expansion phase is poised to kick in and, when it does, we should see heifers diverted from feedlots to breeding herds. This diversion will strengthen feeder steer prices and is the cattle cycle effect that I am talking about.
posted by Dr. Harlan Hughes 2:02 PM