Cattle feeders face a challenging time in the coming months, with more than enough risk and volatility to go around. The market does, however, offer some opportunities and indications that conditions will improve down the road.
In their annual outlook conference during the Beef Industry Annual Convention earlier this month, Cattle-Fax analysts described an industry that faces considerable volatility and challenges, but also offers opportunities for producers who adapt to change.
Fed-cattle slaughter this year will be about the same as during 2007, according to Cattle-Fax, and beef supplies will decline slightly as exports increase. Fed-cattle prices this year are expected to av-erage between $92 and $94, with a range of $85 to $102 and highest prices coming in the second half of the year.
Price spreads between different types of calves from different locations continue to widen. Buyers are less willing to commit expensive feed to risky cattle, and premiums for preconditioned calves are averaging $5 to $8 per hundredweight. Also, as transportation costs rise, buyers are discounting feeder cattle purchased in locations further from feedyards. A 750-pound steer in the Central region sold at an average premium of almost $12 per hundredweight over one in the Southeast during 2007, compared with an average spread of $6.55 from 2000 through 2006.
Feed prices will limit feeding margins for the foreseeable future. World corn stocks-to-use levels are tighter than any time since the early 1970s, and U.S. corn stocks will tighten more this year with high demand and probable decreased production, resulting in continued high prices. Hay will remain ex-pensive, as well. Prices increased about 20 percent during 2007, and supplies remain tight as grain crops compete for acreage.
Domestic beef demand bounced back during 2007 with a 1 percent increase after two years of small declines. It is unlikely we will see any further increase in domestic demand this year, given the slowing economy, consumer uncertainty and higher food prices. We’ll also need to assess the long-term fallout from negative publicity generated by February’s record-setting beef recall.
The brighter side of the demand picture is in the export market. U.S. beef exports grew by about 22 percent in 2007. Better access to markets in South Korea and Japan could boost U.S. beef exports by more than 40 percent this year. Cattle-Fax projects that by 2009 or 2010, U.S. beef exports could recover to pre-BSE levels of 2003.
High cost of gain in the feedyard creates an expectation that cattle will remain on pasture longer and go on feed at heavier weights. Logical as that seems, other forces continue to prevent it from be-coming a dominant trend.
February’s Cattle on Feed report showed January placements up 6 percent from January 2007. No-tably, placements weighing less than 600 pounds were up 20 percent and those weighing 600 to 699 pounds were up over 16 percent. Placements over 700 pounds, meanwhile, were down 6 percent from last year.
The figures demonstrate that shortages of grazing opportunities such as wheat pasture have con-tinued to push lightweight cattle into feedyards in spite of the high cost of feeding them to finished weights.