CATTLE FEEDER ROLLS OVER
CASH FALLS TO $64
Prepared by Hales Cattle Letter
Feeding Profits Falling Fast
As the feeding industry entered the month of June, the realization that the market has already topped and prices are headed lower finally sunk in. The time has come for cattle feeders to pay for their sins of excess. They may find the next six months to be like a giant hangover because when profits returned this spring, they partied too hard. They paid too much for feeder cattle and placed too many in the feedlot. Breakeven prices increase each month from now through the fall. Fed steer prices must increase $8 to $10 from current levels by early fall for some cattle feeders just to recoup their investment.
Cattle feeders see two ways to mitigate the problem. (1.) Sell as many cattle as possible before the packer's huge formula and contract supplies drive prices lower. The results of this method are highly visible. Fed prices have fallen from $67 Tuesday, May 20 to $64 Tuesday, June 3. (2.) Slow the feeding process and feed cattle longer to move cattle toward the higher futures' prices. This method is not as visible as number one but has just as much impact. Feeders want to push August cattle into September to gain the $2.50 premium of October futures, and push October cattle into November to gain the $2.75 premium of December futures. As a result, there will be more fall cattle that are much heavier than placement patterns suggest.
Cow Slaughter Follows Seasonal Pattern
The chart shows cow slaughter this year, last year, and the 1991- 1995 average. Finally, slaughter rates are following the seasonal pattern of the stable herd years. With adequate moisture in most of the nation, this trend should continue through the balance of this year. At least this is one ray of good news for the industry. Think of where total beef production would be if cow slaughter was equal to last year.
Weekly Total Cow Slaughter
Beef production soars
Today's second chart shows total beef production for this year and last year. Since the middle of February, beef production has stayed below last year because of lower fed carcass weights and smaller cow slaughter. This has helped keep fed prices above last year. Will the factors mentioned above keep beef production in July and August below last year? If so, the summer lows will be made in June.
Weekly Beef Production
June 6, 1997
David Hales and Tom Horton
Hales Cattle Letter P.O. Box 1623,
Amarillo, Texas
Relocated 06-13-97
Last updated on 06-13-97
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