PRUDENTIAL SECURITIES, INC.
One New York Plaza,
New York, New York

(June 9, 1997) CATTLE: The USDA is scheduled to release the Cattle on Feed report June 13. We expect the number of cattle on feed to exceed last year by a significant 13%.

The cattle on feed inventory was extremely low last spring as record corn prices discouraged placements and encouraged marketings. Last July, the feedlot inventory was 11% below the previous year. However, when cheap corn became available in the fall, cattlemen began to place record numbers. Inventories have grown since that time and are expected to exceed last year by a staggering 13% on June 1.

Because placements have remained large relative to marketings, the number of cattle on feed for 90 days or more is expected to reach record levels on June 1.

Cattle that have been in the feedlot for 900 days or more normally reach marketable weight over the next two months. With record numbers expected in this category, feedlot marketings should approach record levels during June and July.

Although marketings will be large this summer, beef production will not expand by the same degree.

Cow slaughter fell sharply in recent months. Strong feeder cattle prices returned profitability to the cow-calf operator and herd liquidation ended. The table illustrates the effect of fewer cows and the slaughter mix on beef production during April.

Beef Production (FIS)--April
Million Pounds

     		1996 	1997 	% Chg.

Steers    	1173 	1100	- 6.2
Heifers   	 600  	 639	  6.5
Total   	1773 	1739	- 1.9

Cows 		 300  	 281	- 6.3
Bull & Stags   	  51   	  51	   --
Rounding Adj.-    10   	  -9	   --

Total*          2114 	2062	- 2.5

Observations from April slaughter statistics:

--During April, steer and heifer slaughter (feedlot marketings) were up 0.2% from last year. However, because heifers weigh less at slaughter, beef produced from steers and heifers was down.

--Although total slaughter was down 1.3% from last year, total beef production was down 2.5% due to fewer cows and more heifers in the slaughter mix.

--Although the USDA reported feedlot marketings 1.5% above last year, total beef production fell 2.5% below last year due to the change in slaughter mix.

--Although feedlot marketing are expected to reach record levels during June and July, beef production will not increase by a comparable percentage due to the change in slaughter mix. In addition, beef prices will be attractive compared to pork, resulting in a moderate shift in consumer demand.

We expect August futures to work toward the $60 to $62 area this summer. However, due to the change in slaughter mix and less competition from pork, summer lows should remain well above last year's low of $54. Following the summer price slump, prices are expected to begin an advance that will continue through fall. The extent of the fall advance will depend on summer placement patterns; the level of competing meat production; and, the extent of recovery in export prospects. At the present time, fall highs project to reach the $70 to $72 level, in line with current December future prices.

We advise selling rallies in August futures until prices move below the $62 level.

Bill Gary

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