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Virginia Cooperative Extension -
 Knowledge for the CommonWealth

The Cattle Business -- Market Situation

Livestock Update, November 1999

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

Limited feeder cattle supplies, cheap cost of gains, and firm fed cattle prices have all contributed to a stronger fall feeder cattle market in Virginia. Through the September-October period feeder steer prices have brought $10 to $15 per cwt. higher than the fall of 1998.

When many of Virginia's traditional feeder cattle customers came looking for yearlings and heavy weight calves in September, most found the feeder cattle cupboard bare. Drought conditions drove many of the yearlings and weaning weight calves out of the state during the summer. The fall has found cattle feeders scrambling for the available feeder cattle. Many traditional yearling feeders have had to switch to lighter weight calves to fill the lot. It looks as though the market might not even have to suffer the mid-October slump in prices so historically a part of Virginia's feeder marketing season.

Abundant and cheap corn supplies have left grain growing regions of the country looking for a way to add value to $1.50 per bushel corn. Feedlots are projecting total costs of gain in the low $40's per cwt. Potential cheap gains have built a fire under feeder cattle values.

Another of the factors contributing to the strength in feeder cattle has been the strength of fed cattle prices throughout the summer and fall and projected strength in the first half of 2000. Fed cattle prices held in the mid-$60's through most of the summer and have run $6 to $10 ahead of 1998 during September and October. Cattle feeders currently putting cattle on feed can forward price fed cattle at $68 to $71 for the first and second quarters of 2000.

The fed cattle market has been driven by excellent beef demand in the face of higher supplies. Beef has actually won back some market share during 1999. During the January to September period of 1999, spending on beef accounted for 40.7% of all meat spending as compared to 40.2% for 1998. This level is certainly a long way from the 53.9% market share that beef enjoyed in 1980 but does provide further evidence of the turnaround in loss of demand for beef. During the first three quarters of 1999, beef production has been at record high levels while fed cattle prices have exceed last year's levels for all but eight weeks of the year. The relative currentness of the feeding sector during 1999 has put feeders in a much stronger bargaining position for most of the year.

Several factors have contributed to the strength of demand for beef in 1999. A strong economy with a wealth of disposable dollars and increased spending on new beef products has had a positive influence. During the first six months of 1999, exports of beef and variety meats were up 7.1% in volume and 8.3% in dollar value. The countries of Japan, Mexico, Canada, and South Korea account for 82.7% of U.S. beef export tonnage and 88% of export value. The value of hides and offal continues to improve largely due to the strength of Asian currencies relative to the dollar.

Beef production should decline in 2000 as the industry works with a smaller cowherd. Better calf prices have seemed to slow cow slaughter nationally by 6% for the year. The slowing in cow slaughter will more than be offset by the larger percentage on heifers placed on feed during the past four years. Available beef supplies that should be smaller through 2003 coupled with continuing cheap feed grain prices should signal continued stronger feeder cattle prices.



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