The first 2010 reports of pasture and range conditions from the National Agricultural Statistics Service (NASS) indicate that pasture conditions are the best in possibly the last two decades. In addition, establishment of the corn crop is also well under way and ahead of previous years. These two factors indicate a steady feed price outlook for the immediate future, barring weather downturns, changes in export markets, or other supply/demand shocks. Despite the positive conditions observed in general, dry areas of varying sizes do exist in the northern Rocky Mountain region, the Upper Midwest, and the Appalachian Mountains. Expansion of these scattered areas of dry conditions could be cause for concern later in the grazing season.

Relatively high levels of federally inspected cow slaughter as a share of January 1, 2010 cow inventories, especially beef cows in the Midwest, Southern Plains, and Southwest, have continued into the second quarter of 2010, despite current calf price levels, profit margins, and pasture conditions. An explanation is that cow-calf producers may be marketing cull cows as the decision to cull them is made, thus capturing the high prices, rather than waiting until later in the year to sell them as a group and risking price declines. Imported Canadian cows for slaughter are also contributing to the high cow slaughter numbers, but do not explain the whole picture. Recent weekly imports of Canadian cows represent about 2.5 percent of total weekly federally inspected cow slaughter. Weekly federally inspected cow slaughter during the week ending April 3 through the week ending May 1, 2010 was 13 percent ahead of slaughter for the same period last year. Adjusting for the Canadian cows still leaves U.S. cow slaughter up more than 10 percent above slaughter levels last year, which were also relatively high.

Feeder cattle prices at Oklahoma City have increased significantly above January/February levels. Average prices for April for 750-800 lb, No. 1 Large and Medium feeder steers were 18 percent above January 2010 prices and 14 percent above April 2009 prices. However, feeder cattle prices are at levels that—despite current projections for corn and feed prices—are rapidly narrowing cattle-feeding profit margins, indicated by current futures prices and USDA's projected prices for late summer and early fall. Feeder cattle inventories are expected to be tighter in 2011 than in 2010 because of the successively smaller calf crops that provide placements of feeder cattle. When heifer retention aimed at cow herd expansion occurs, in 2011 or whenever, feeder cattle placements will show additional declines. The large proportion of lighter weight feeder cattle placements reported in the April Cattle on Feed report, has raised the question of whether there are heavier cattle still outside feedlots—perhaps on graze-out wheat—and, if so, when will they be placed on feed? The May and June Cattle on Feed reports should shed some light on this issue. In the meantime, receipts at the Oklahoma City Auction on May 10 included a large share of feeder cattle over 800 lbs, an indication that at least some
of them exist.

Wholesale cutout values also continue at near-record levels. Byproduct values almost twice what they were this time last year are contributing to packer returns and providing some of the motivation for the recent increases in weekly slaughter levels compared with a year earlier. As a result, federally inspected beef production is above year-earlier levels on a weekly basis for the week ending May 8, despite dressed weights significantly below year-earlier levels. While there is some support from the pork sector in terms of higher year-over-year pork prices and lower supplies, poultry prices that are relatively lower than beef and pork prices, along with larger poultry supplies, will be factors mitigating further beef price increases.

Source: ERS/USDA