The Cattle Business

Livestock Update, September 1996

Bill McKinnon
Animal & Poultry Sciences

As we head into the peak fall feeder cattle marketing season, several factors, as always, will determine the price level at which cattle trade hands. The biggest factors will be the number of feeder cattle available, the price of corn and its impact upon cost of gain, and the supply and demand situation for fed cattle.

The July 1, 1996 U.S. Cattle Inventory Report confirms many speculations that herd liquidation is under way. The dismal outlook for cow/calf operators for the next few years coupled with high feed costs produced a reduced cow herd and lower replacement heifer retention. The dramatic increase in cow slaughter during the first six months of the year was substantially fueled by the drought conditions in the southwestern section of the country. If we can find a silver lining behind the sharply higher feed costs from late 1995 to present, it is that the industry shifted into the liquidation phase of the cattle cycle earlier and in a more earnest way in 1996.

Both the cattle inventory report and the latest cattle on feed report show the impact of the dramatically higher feedlot costs of gain. The increase in the number of "feeders outside of feedlots" is substantiated by the lower cattle on feed figure shown in the August 1 Cattle on Feed Report. The July placement number shown in the August report is the first time this year that placements have been shown any advance over 1995. The high cost of gain coupled with lower fed cattle prices have forced feeder cattle bids lower. The lower feeder prices have encouraged feeder cattle to stay on grass programs.

The cattle on feed report does give hope to current cattle feeders that fed cattle can hold in the mid - $60 through most of the fall. As we enter the new year the increased beef tonnage resulting from potentially heavier than normal yearlings placed on feed may help build supplies.

The cattle industry along with the pork and poultry sectors have watched with great anxiety the progress of the 1996 corn crop. The hope was that with acreage restrictions lifted a bumper crop would follow. The weather pattern through the Corn Belt, especially the eastern section, did not appreciate how bad the livestock feeding industry needed a bumper crop. In parts of eastern Corn Belt much of the corn was planted late or not at all. The latest USDA corn crop estimate puts the `96 crop at 8.695 billion bushels, substantially below the wishes of corn users. A crop of this magnitude will do little to replenish drawn down corn stocks. The industry will have to spend another year of using price to ration out the limited corn supply. The USDA crop estimate does contain relatively low per acre yields in its crop equation. The potential does exist for some improvement in crop conditions. Most of the Corn Belt cannot stand an early frost. To the contrary, a large area needs a later than normal killing frost to make a mature crop.

The fall of 1996 could be a repeat of last fall in terms of both feeder cattle price levels and price structure. That would put feeder steers sold in graded sales in the low $60's almost irregardless of weight bracket. The heifer mates will lag behind by $7 to $12 dependent upon weight.

Many producers have been surprised that for the last several months they have seen heavier weight feeders sell premium to lighter weight cattle. Expanded beef production has lowered fed cattle prices and higher grain prices have driven up feedlot costs of gain to the point where it costs more to put on a pound of gain than the cattle feeder gets paid per pound that is put on. The situation has created relatively poor demand for calves versus yearlings. The example below illustrates the more drastic impact that high feed prices have had on calf prices compared to yearlings. The example compares the impact of feedlot cost of gain in late 1994 and early 1995 versus those found in 1996.

850 lb. yearling steer finished to 1250 lb. Equals 400 lb. gain

550 lb. steer calf finished to 1200 lb. Equals 650 lb. gain

The above example demonstrates the lukewarm demand for calf- weight feeders. This relationship should exist for the next several months.

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