K-State Livestock & Meat Marketing Home Page
Overview
Kansas slaughter cattle prices traded in the low $60's during
July. As a result, cash prices during July averaged near $63.50
per cwt., about 10% below a year ago, and the smallest year-to-year
percentage price decline since March. Boxed beef prices weakened
through mid-month, but showed signs of strengthening at month's
end. The weekly average light Choice boxed beef cutout value
was $113.55 in late June, dipped below $109 in mid-July, but recovered
to about $110 the last week of the month.
Large total meat supplies continue to plague the livestock sector. Cattle slaughter during July was 3.6% larger than a year ago. According to weekly slaughter and production estimates published by USDA, average dressed cattle weights were 2.7% heavier than last year, which pushed July beef production 6.3% above 2001's. At the same time pork production was 3.4% larger than a year ago and broiler production was up nearly 1%.
Longer term, beef supplies are expected to tighten this fall. Weights will remain heavy by historical standards, but will gradually approach last year's level since weights a year ago were also heavy. As beef supplies tighten, it should push cash prices up from the low $60's of this summer to the high $60's this fall. And there is a chance that cash slaughter cattle prices could average above $70 during October-December. Whether or not slaughter cattle prices cross over into the low $70's will be dependent on how large domestic competing meat supplies are and the strength of the U.S. economy.
Cattle Inventory Declines Again
USDA's July 1, 2002 cattle inventory indicated that the all
cattle and calves inventory was down 0.6% compared to a year ago
and 6.9% below the most recent inventory peak in 1995. States
currently experiencing severe drought, such as Kansas, Nebraska,
Colorado and Montana had the largest inventory declines. The
inventory of all cows and heifers that have calved was 42.9 million
head, virtually unchanged from last year. The beef cow inventory
was down 150,000 head (-0.4%), whereas the dairy cow inventory
was up 50,000 head (+0.5%). Beef replacement heifers were unchanged
from 2001, the first time since 1995 that beef heifers intended
for replacement did not fall below a year ago. USDA's first estimate
of the calf crop was 38.4 million head, up 0.3% compared to 2001.
Overall, the cattle inventory report indicated the U.S. cattle
herd is holding steady, possibly poised for expansion if moisture
conditions improve and cattle prices increase.
Placements Decline
Large losses this spring discouraged cattle feeders from placing
cattle on feed. As a result, U.S. net placements of cattle on
feed during June declined nearly 16% compared to last year. Net
placements on feed also fell below 2000's (-0.9%) and the June
five-year average (-1.7%). Placements of cattle on feed were
smaller across all placement weight categories, but the smallest
decline was among cattle weighing 800 pounds or more (-8.2%).
Still, this was in contrast to prior months when heavy weight
placements were actually larger than the prior year. So far this
year, U.S. cattle feeders have placed 175,000 fewer head on feed
than in 2001. And from April through June, U.S. cattle feeders'
net placements on feed were down 468,000 head (-8.3%) compared
to last year. Primarily as a result of the smaller placements,
the U.S. July 1 on feed inventory was 4.8% smaller than in 2001,
although it was still 6.8% larger than the five-year average.
This past spring's placement decline should lead to tighter slaughter
cattle supplies this fall.
Weights Still Heavy
Slaughter cattle weights are still very heavy. Dressed steer
weights averaged 829 pounds during the first half of July, nearly
4% heavier than a year ago. Slaughter weights always decline
into the early spring and then start to increase, typically peaking
in early fall. But this year, since bottoming out in early May
at 796 pounds, steer weights have been increasing slightly faster
than normal.
Weights during the fall quarter typically average below the summer quarter, although the decline is often less than 1%. Given that weights this year have been increasing somewhat faster than normal, it looks like commercial dressed weights this fall will wind up at or slightly below this summer's level, which implies a year-to-year increase of less than 1% compared to a year ago.
Trade Picture
Broiler exports were still weak during May, but the year-to-year
decline was markedly smaller than during April. Total broiler
exports from the U.S. during April fell 38% below 2001's. But
during May, broiler exports only fell 7% below a year ago. So,
April-May 2002 broiler exports were 22% smaller than last year.
In particular, broiler exports to Russia declined 91% and 69%
compared to April and May 2001, respectively. The U.S. broiler
industry responded to the large decline in broiler exports to
Russia during April by increasing exports to Mexico. However,
during May U.S. broiler exports to Mexico actually fell 18% below
a year ago.
The broiler export outlook is clouded by the ongoing possibility that Russia might again ban imports of U.S. poultry. Uncertainty about the ability of U.S. poultry exports to enter Russia after August 1 effectively halted most broiler exports to Russia during July. Recent news reports suggest the August 1 deadline has been pushed back to mid-September, but that's not likely to stimulate much broiler product movement during August, unless a permanent agreement between the U.S. and Russia on poultry inspection requirements is reached.
Beef exports rebounded modestly this spring, compared to this past winter. During the January-March quarter total beef exports rose less than 1% compared to 2001. The beef export picture brightened during April-May, however, as total beef exports rose 19% above the previous year. Although beef exports to Japan were down (-28%), exports to Mexico (+40%) and S. Korea (+252%) both increased. The huge increase in beef exports to S. Korea was probably tied to the World Cup. As a result, U.S. beef exports to S. Korea are expected to weaken this summer as the temporary demand boost provided by the World Cup subsides.
Beef Cow Slaughter Still Below 2001
Dry, hot weather continues to plague the Great Plains and
West. As a result, many cow-calf operations are weaning calves
and culling cows earlier than normal. But most of the cows that
moved through auctions in recent weeks were shipped to better
pastures, instead of to slaughter. For example, beef cow slaughter
during the first half of July was actually 1.4% smaller than in
2001. Dairy cow slaughter was above a year ago and, as a result,
total cow slaughter during early July was 1.3% larger than last
year. The modest decline in weekly beef cow slaughter during
July followed a small increase (3.2%) during June.
Cow slaughter could still rise above last year's level over the next few weeks as continued deterioration in pasture conditions encourages even more herd liquidation in the West and Plains states. One of the keys to cow slaughter will be pasture and crop conditions in the Corn Belt this summer. If Corn Belt conditions hold up during August, it's likely to hold down cow slaughter levels this fall.
Slaughter Cattle Outlook
The decline in placements on feed this past spring should
lead to smaller slaughter cattle supplies this fall. But large
placements of heavy weight cattle on feed this past spring could
keep steer and heifer slaughter supplies above last year until
late summer. And it looks like weights will remain heavy, although
the year-to-year weight increase should decline to around 1% this
fall. The bottom line is beef production this summer could wind
up nearly 4% larger than last year. Fall quarter beef production
is expected to fall below a year ago, but only by about 2%.
Larger beef production this summer, combined with larger competing meat supplies, means Kansas slaughter cattle prices are likely to average in the mid-$60's. Fall quarter prices are expected to trade primarily in the high $60's, unless continued drought encourages larger than expected placements on feed and more cow slaughter than forecast. Longer term, beef supplies should remain below this year's level during early 2003, helping to push Kansas slaughter cattle prices into the $70's. How far prices will rise above the previous year's level will be determined in part by weather conditions this fall and winter. Mild weather during fall 2001-winter 2002 contributed to the industry's weight problems this past year. A return to more normal weather conditions this coming year could hold down weights, which would give prices a boost, possibly setting the stage for Kansas slaughter cattle prices to trade in the mid-$70's this coming winter.
Feeder Cattle Prices Vulnerable to Corn Rally
Feeder cattle prices, especially feeder cattle futures, have
fluctuated recently in response to rising and falling feed grain
prices. But optimism about future slaughter cattle prices still
appears to be the dominant theme. Despite the recent strength
in corn prices, 700-800 pound steers at Dodge City averaged $78-$79
during July, up slightly from the June price average. Feeder
cattle prices are still vulnerable to further increases in feed
grain prices. Barring a significant run-up in corn prices from
late July's $2.55 (December futures) level, look for feeder steers
to continue to trade near $80. Longer term, slaughter cattle
price strength is likely to be bid into feeder prices. So, if
slaughter cattle prices rise this fall as expected, feeder steer
prices will likely average in the low $80's during October-December.
Futures Based Cash Price Forecasts
Futures prices, adjusted for basis expectations, are a source
of continuously updated cash price forecasts. As an example,
Kansas slaughter steer and Dodge City feeder steer price forecasts
based upon futures prices at the time of this writing (7/26/02
settlement prices) adjusted for basis expectations are included
in a graphical format. Basis forecasts are based upon the most
recent three-year average basis for Kansas slaughter steers and
700-800 pound feeder steers. To provide some indication of the
amount of risk present, forecasts based upon the most positive
and negative basis of the last three years are also included.
Weekly updates (in graphical form) of these price forecasts are
also available on the K-State Livestock & Meat Marketing Web
Site (www.agecon.ksu.edu/livestock) in the weekly electronic publication
entitled Cattle Price & Supply Graphs.