The Oct. 19 United States Department of Agriculture cattle-on-feed report contained good and bad news for farmers.
And like it or not, farmers will feel the bad news first, say cattle market analysts.
“The report continues to confirm the fact that U.S. cattle feeders have a front end problem,” said Anne Dunford of Canfax.
“The on-feed numbers continue the record large numbers we’ve seen all year long.”
Dunford and Chuck Levitt of Alaron Futures and Options in Chicago say producers shouldn’t expect better prices until sometime in 2002.
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“We have a huge front end supply,” said Levitt. The cattle on feed is “the largest we’ve ever had on that date on record.”
The USDA found one percent more cattle in feedlots on Oct. 1 this year than last year, and eight percent more than in 1999.
Those cattle are also heavier than usual, because feedlot operators have been holding back animals from slaughter. Fed cattle prices have been too little compared to what feedlots were paying for replacement animals. Many decided to hang on to animals.
“They fed the animals to record weights,” said Levitt.
Sales to packers declined nine percent from last year’s Oct. 1 rate, and seven percent below 1999.
The good news is that placements in feedlots, or the number of cattle moving from farms to feedlots, is down 20 percent from last year and 23 percent below 1999. That helps mitigate the developing mountain of beef.
That means better prices will probably reach producers early in 2002, said Levitt. The fed cattle surplus could clear by February, but it depends on the actions of cattle feeders.
“If they bite the bullet, even though they’re losing some money, and move the cattle to market in a timely way, and don’t carry a backlog of cattle into the first quarter, then next year’s market will have much better promise and much more potential,” said Levitt.
If they don’t take their knocks now, the recovery will be delayed.
“If they still want to sit on the supply because they think feed is cheap and they’re paying too much for the replacement animals, then they’ll just limit the potential of the market getting above that $70 US limit.”
For the remainder of 2001, Levitt thinks cattle prices will stay in the $66 to $68 per hundredweight range, but should edge up to the low $70s in February or March.
For feedlot supplies to drop, U.S. slaughter has to rise above 700,000 animals per week, Levitt said.
Another market factor is the mad cow disease panic that recently hit Japan. It will limit U.S. beef exports, said University of Missouri meat market analyst Ron Plain.
Japanese consumption has dropped by 30-70 percent since a cow was found with the disease, Plain said.
How long that drop will last is unclear. European beef consumption dropped sharply after the BSE outbreak there, but has rebounded. However, it is still 10-15 percent below pre-BSE levels.
Levitt said demand worries have made the beef futures markets twitchy, since no one has a good sense of how U.S. beef consumption will be affected by the war with Afghanistan. The recent anthrax scare has increased uncertainty.
“All of that has a negative spin to it as far as the market is concerned. That’s why the market is so jumpy,” said Levitt.
War and terrorism are likely to dominate market psychology in the coming months.
“There are hundreds of factors in the market. It’s whatever the market’s willing to march to at that particular point in time (that matters). Psychology sometimes can be 90 percent of a market.”
Dunford said uncertainty is likely to make feedlot operators cautious about buying replacement cattle.
“There are more questions than there are answers. When you get that kind of an environment, cattle feeders tend to sit back and wait.”
Overall, Dunford and Levitt expect the rest of 2001 to bring disappointing prices to producers, but better prices once the beef glut is digested.
“In the longer term, there’s a brighter light out there,” said Dunford.
