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"Much is riding on the size of grain, soybean and forage crops
this spring and summer," said Chris Hurt. "Eastern Corn Belt
steer calf prices are expected to trade in a range of $100 to
$115 this spring, with fall prices $5 to $10 higher at $105 to
$120. "The costs for cow-calf producers are now much higher,
and many producers may require prices that are $115 to $130 just
to cover all costs. Expect the potential for wide swings in calf
prices, and the cattle outlook in general, as weather unfolds in
2008."
Hurt noted that the cattle industry is in a period of
adjustment to the new realities of higher feed prices, lingering
drought, shortage of forages and the biofuels era.
Beef production in the first quarter of 2008 was up a
surprising 3 percent and continues to rise by an even more
troubling 7 percent so far in April.
"The sharp rise in production is probably attributable to
heavy placements of feedlot cattle last fall," he said. "Those
placements were up 9 percent from August through November. Why
such heavy placements at this time?
"First, corn and other feed prices were much lower late last
summer and into the fall. The average price received by farmers
for corn in the August-through-November period was a mere $3.32
per bushel. High protein soybean meal at Decatur, Ill., averaged
$253 per ton. Second, live cattle futures were overly
optimistic."
As an example, during the August-to-November 2007 period, the
February 2008 live cattle futures averaged near $100 per
hundredweight, while the contract expiration price was about
$93, he added.
The beef cow herd has been getting smaller due to drought and
poor returns to cow-calf operations. That trend is likely to
continue, he predicted.
"Drought in the Southeast is easing, and predictions from the
National Weather Service are for continued improvement this
spring," he said. "The question will be whether producers decide
to restock cows this year or wait to see what happens with
drought and with cattle markets.
"Dry conditions are developing again on the western fringe of
the Great Plains and continue in some of the regions of the
Rocky Mountain states."
And the beef cow herd continues to get smaller. Slaughter of
both cows and heifers has remained high in 2008. For the first
two months of the year, cow slaughter was up 7 percent and
heifer slaughter was up 4 percent. In addition, the number of
heifers in 1,000-head and larger feedlots was up 3 percent on
April 1, according to the USDA.
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"Despite a discouraging outlook, placements in January and February
were up 5 percent," Hurt said. "Fewer calves were wintered on wheat
pasture, and those that went on wheat were taken off sooner to
protect wheat yields.
"Another reason for continued high placements was that forages
were in short supply and high-priced, thus pushing calves away from
backgrounding and toward feedlots. However, that trend has now
changed as a result of high feed costs, disappointing fed-cattle
prices and large feedlot losses."
In the quarterly Cattle on Feed report, the USDA reported that
feedlots reduced placements by 11 percent in March. Those placements
were the second-lowest for March since the current data series was
started in 1996.
"Cattle prices in general have been disappointing so far this
year," he said. "First-quarter finished steer prices averaged about
$90 per hundredweight, down $1 from the same quarter in 2007.
"Despite smaller supplies, calves and feeder cattle prices in the
first quarter were the same as in the similar period in 2007.
Oklahoma City feeder steers weighing 500 to 550 pounds averaged $122
per hundredweight, and 750- to 800-pound feeder steers averaged
$100."
Looking forward, beef supplies in the second and third quarters
are expected to rise by 2 to 3 percent. Smaller placements this
spring are expected to reduce beef production by 4 percent in the
final quarter of the year.
"Unfortunately, pork supplies will also be large in the second
and third quarters, before dropping in the final quarter," Hurt
said. "Once the smaller beef supplies arrive by the fall of 2008,
they will continue to drop for several years. Current expectations
are for a 2 to 3 percent reduction in beef production in 2009."
Finished cattle prices will remain under pressure for much of the
summer, with prices averaging in the lower $90s.
"The rally in the fall should move cattle prices into the
$94-to-$98 range," he said. "It is well worth noting that futures
for late 2008 are trading above $100 and may be stronger than
supported by anticipated fundamentals. Prices should continue to
rise into the first quarter of 2009, with highs in March and April
possibly reaching $105."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences] |
