Beef Market Advisor

Tuesday, July 13, 2004

Management: Pounds Pay, And They Take Away, Too

Forget heavyweight discounts for a minute, the logic that tells feeders to add as many
pounds as possible so long as quality and yield penalties can be avoided, or at least
managed, and as long as the cost of gain is lower than the sell price, may cause more harm

According to a recent commentary from Dillon Feuz, University of Nebraska agricultural
economist: `If cattle are fed one additional week, that's approximately 22 lbs. of additional carcass
weight. If we [the industry] harvest 700,000 head per week, that's an additional 15.4 million
lbs. of beef per week; that represents about 20,500 additional head each week, or a 3%

`Historically a 3% increase in supply of beef has resulted in a 5-6% decline in the price of
fed cattle. At current price levels that would be about $5/cwt., which would likely result in a
market price that is below the breakeven price of most cattle that are nearing harvest date."

Whew! Never mind the overall cost such a move has to the total industry, Feuz points out
that, with carcass weights recently rising above the five-year average, individuals need to
factor the potential for more pounds and lower potential price for all pounds into their

Using the scenario above, if you tacked on the extra 20 lbs. at $60/cwt., the added gain is
costing $12. If you could have sold a 1,250-lb. steer at $86/cwt., but the aggregate move of
the industry raises carcass weights and reduces price by $5/cwt., Feuz explains you're
selling 1,270 lbs. for $81. The net is that the heavier steer is returning $58 less than if he'd
been shipped earlier.

`Another issue is what happens when the border is reopened with Canada?" Feuz wonders.
`If fed-cattle weights have increased and feedlots are no longer current, there will likely be
more downward price adjustment than if feed lots were current and weights were moderate."

Harlan's Comments: Estimates are that the Canadian backlog of slaughter cattle by end of 2004 is approximately 273,000 sluaghter cattle and approximately 383,000 cull cows. I seriously doubt that the border will open to cull cows so that leaves a potential market impact of the 273,000 slaughter cattle. Given the U.S. approximately 125,000 head slaughter per day, that 273,000 is equal to only 2.2 days slaughter in the U.S. It is hard for me to visulize that 2.2 days slaughter will wreck the U.S. market. In addition, limited trucking capacity will limit how fast slaughter cattle could be shipped from Canada to the U.S. slaughter plants; thus, .

From a supply stand point, opening the Canadian border should not really impact the U.S. markets. I fully expect, however, that U.S. cattle buyers will jawbone done prices more than actual increase supply will depress prices. Should the border open, U.S. cattle sellers should just say "NO" to U.S. buyers jawboning down cattle prices. Just do not sell at the jawboned lower prices is my advice.

posted by Dr. Harlan Hughes 7:24 PM [edit]

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