Welcome to the 43rd issue of Angus e-List

Cattle Prices Begin Recovery, Further Gains Expected

MANHATTAN, Kan. — After a several-month slide that pulled cattle values 11% below year-earlier levels, things are looking up for cattle feeders.

Slaughter cattle prices in the key western Kansas market climbed $7 per hundredweight (cwt) from mid-December’s values up to $69 in late January, said Kansas State University agricultural economist James Mintert.

"Some reports indicated cattle show lists were already starting to shrink, plus late January’s snow storm could reduce beef tonnage. And smaller placements of cattle on feed last fall mean the supply of fed cattle will tighten as winter progresses."

With average slaughter cattle prices last fall dropping into the low $60s per cwt, cattle feeders were losing $150 per head or more on cattle coming out of feedlots. That sparked a reluctance to place more on feed which will lead to smaller show lists of market ready cattle later this winter and spring.

The U.S. Department of Agriculture on Jan. 11 reported a 7% decline in the number of cattle placed on feed [U.S. feedlots] in December - the fifth consecutive month that cattle feeders reduced placements compared with the previous year. The long-term placement decline means cattle show lists will tighten as winter progresses.

The tighter supplies should boost cattle prices up over $70 in February and into the low to mid $70s by spring if domestic beef demand holds at least steady, said Mintert.

Two primary factors — heavier-than-usual cattle weights and slow beef exports — will limit price gains at least for a time, however.

Steer weights, a good indicator of fed cattle marketing weights, peaked in November when they averaged 830 pounds, Mintert said. That was one month later than they normally peak, and weights remained heavy during December, averaging 827 pounds. Steer weights were still heavy in January, averaging 3% above a year ago.

"Heavy weights will continue to plague the industry throughout the winter and early spring, 2002, until the supply of market-ready cattle tightens enough to cause packers to pull supplies forward," the economist said. "That’s not likely to happen until late spring, although an extended spell of cold, wet, winter weather could reduce weights more quickly."

Weaker sales of beef to overseas buyers are also slowing the price recovery, Mintert said.

USDA data indicates U.S. beef shipments to Japan in November fell 32% below 2000’s, and the U.S. Meat Export Federation reported that beef exports to Japan were also well below the prior year during December — largely due to the discovery of bovine spongiform encephalopathy, also known as BSE or mad cow disease, in Japan’s cattle herd.

Japan in recent years, has been the biggest buyer of U.S. beef exports.

Weak economic conditions overseas have caused a decline in beef by-product exports, which has further weighed on beef and cattle prices, Mintert said.

"How quickly Japanese consumers will increase their beef consumption is difficult to project. Odds favor a slow recovery in consumer confidence, which could be hampered by announcements of additional BSE cases in Japan," he said. "Moreover, a weak Australian dollar and vertical integration between Japanese and Australian firms means that Australian beef exports could recover more quickly than U.S. beef exports."

As a result, he said, U.S. producers should look for their beef exports to Japan to remain well below a year ago through the first half of 2002.

After a spring rebound to the low- to mid-$70s, Mintert expects cattle prices to take their seasonal dip by late June or early July.

"But the magnitude of the price decline will depend on the placement pattern the rest of the winter and early spring, and on whether or not a recovery in U.S. beef exports to Japan gets underway before mid-year."

Cattle Feeding Losses Weigh on Feeder Prices

MANHATTAN, Kan. — Slaughter cattle prices have staged a modest recovery from last fall’s lows, but not enough to put profits back into cattle feeders’ pockets — yet. And that’s been a problem for the feeder cattle market.

"Cattle feeding losses appear to be dampening cattle feeders’ enthusiasm for buying replacement cattle," said James Mintert, livestock marketing specialist with K-State Research and Extension. "Even with the recovery in cash [slaughter cattle] prices since mid-December, most cattle marketed during January still lost $50 to $100 per head."

That marks a several-month trend of losses that dates back to late spring 2001, he said.

Prices on feeder cattle at most weights weakened somewhat during January, but further price weakness appears unlikely, given the rally that’s taken place in live cattle futures, Mintert said.

"As a result, look for heavy feeders to trade sideways until evidence of additional slaughter cattle price strength becomes apparent," he said. "A continuation of the recent rally in cash and futures slaughter cattle prices could provide a boost to heavy-weight feeder prices as they approach their seasonal peak in mid-winter."

Higher slaughter cattle prices and tight calf supplies mean that prices on light-weight cattle "are likely to increase significantly over the next three months," the economist said.

Last year, prices for 500- to 600-pound steer calves during March, April and early May were primarily in the $105 to $110 range. Tight supplies this year could push cash prices above that level if moisture conditions indicate grass pastures will be ample, he added.

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