The Cattle Business -- Current Industry Situation

Livestock Update, April 1998

Bill R. McKinnon, Extension Animal Scientist, Marketing, Virginia Tech

The relatively strong demand for feeder cattle last fall and the anticipated bright prospects for early 1998 have lost their glimmer. Currently the industry finds itself mired in swelled ranks of heavier than normal finished cattle that are carrying lots of red ink. To make matters worse a huge part of our important export market is short on cash to buy our products.

Placement of cattle on feed during the early fall of 1997 was at record or near-record pace for much of the period. Those numbers have been coming to market reluctantly during early 1998. Those cattle bought and fed with break-evens around $70 have been coming to town at $59 to $64. The most common way for the feeding sector to work out of this type of situation is to slow placement of new cattle on feed. The March 1 Cattle on Feed report demonstrates that methodology currently in progress.

As is also common when cattle feeders face substantial red ink is a reluctance to market cattle in a timely fashion. The thought process is that perhaps the market will rebound in a week or so. Cattle feeders are not a group of original thinkers historically. Too many feeders hang on to finished cattle a week or two longer than ideal and the cattle keep getting bigger. This action simply increases the tonnage of beef that must clear the market and usually makes a bad market worse. During the early January to mid- February period this year cattle slaughter was actually 3.3 % lower than the same period in 1997; however beef production was up .5% because carcass weights were up 22 to 36 pounds over last year. Holding cattle always drags out the time it takes to work through a bulge in fed cattle numbers by a couple of months.

The currency problems in several Asia countries has also put a damper on prices. Our number one export market of Japan has significant financial problems and a cheapened Yen which makes our beef products more expensive. In our third largest export market of South Korea, they have had a currency meltdown and can be counted on to buy little beef or beef products for much of the year. South Korea has been a major buyer of U.S. cattle hides. Since late December the Koreans have been absent and hide values have fallen by $30 per head. That loss in value means $2.50/cwt. less on a finished steer and equates to $5/cwt. on a 6-weight feeder. Recently other countries have noticed the hide bargain and are creating a rebound in hide values.

On the larger industry scale, the January 1, 1998 U.S. Cattle Inventory Report demonstrated a scaling back in numbers on all significant classes of cattle. The numbers point to substantially smaller supplies of cattle in the coming years.

Cattle numbers in Virginia followed a similar pattern to national trends with a significant downsizing trend. This was the first year in several that there was an actual decline in Virginia beef cow numbers.

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