World events shaping beef-cattle economy

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The cattle industry is feeling the severe impact of the events of the late summer and fall, says Purdue University Extension Economist Chrus Hurt.

At the beginning of September, he notes, finished steer prices had dropped to $70, a level that most felt would be the low for 2001. Analysts generally believed prices would rebound during the fall months. But, he says, the events of September 11 and mad cow disease in Japan have changed those expectations. By early October, prices had dropped to the mid-$60s, as confidence in beef demand was shaken. Demand for high valued beef cuts for the hotel and restaurant trade dropped as business and vacation travel declined.

Consumers concerned about the economy also began cutting back on their purchasing high-value cuts for home use. Declining beef demand in Japan also reduced demand for high valued cuts. These demand factors have combined to reduce the total value of fed cattle

Cattle feeders also have become cautious in their purchases, Dr. Hurt notes. In September, feedlot managers in the U.S. placed only 2.1 million head of cattle, a 20 percent reduction from placements of last year. Their caution, he says, is understandable given the massive uncertainties that developed after September 11 and contributed to a decline of $7 per hundredweight in the December futures price. This is the smallest number placed in September since the modern report period began, and means that beef supplies late next winter and early spring may be down somewhat. This anticipated reduction could help support futures prices for that time period.

Unfortunately, marketing figures indicate that feedyards have begun holding cattle back in response to declining cash and futures prices. Feedyard marketings during September were down nine percent from the same period last year. Slaughter weights also increased during septpember, after running below year-earlier levels thrugh most of the summer

Based on numbers of cattle on feed and the trend toward heavier slaughter weights, Dr. Hurt projects that beef supplies this fall will be over two percent higher than last year's fourth quarter supply. Winter supplies are expected to be up about three percent. Supplies may finally begin to decline in the spring quarter, when they could be down about one percent. Summer supplies may be down about three percent.

Cattle markets always have the element of uncertainty, Dr. Hurt notes, but that uncertainty is heightened this fall. From current prices, he expects the trend to be upward. Live steer prices may average in the higher $60 this fall, before moving into the low $70's for the first quarter of 2002, he says. With falling beef supplies, and perhaps a more confident consumer, live steer prices could average in the mid to higher $70 for the spring quarter of 2002.

Feeder cattle prices also have dropped significantly. In early September, Dr. Hurt says, 600 to 700 pound Oklahoma feeder steers were trading in the mid to higher $90s. By mid-October, those prices were in the mid $80s to low $90s. he expects, however, that feeder cattle and calf prices may recover more quickly than finished cattle prices. The upward trend in finished cattle prices be positive for feeder cattle, as will low interest rates and cheap feed.



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