PRICES FAIL THIS WEEK–
$64 CATTLE BY THURSDAY
Prepared by Hales Cattle Letter
Sales Volumes Fall
As cutout values collapsed and packers lowered bids this week, cattle feeders stayed a day late and a dollar short. Several feedlots did not sell a single pen of fed cattle this week. As a result, there will be a sizeable carryover of well finished fed cattle from this week into next week in each of the four major feeding states.
Feedlots reported that customers with cattle scheduled to be sold in the second half of August are wanting to delay marketings. They want to push those cattle out of this weak market into what they perceive will be a better market in September. Magnifying this problem is the cattle feeders' solution to the sharp increase in fed cattle breakeven levels during the next few months. The only way to lower the breakeven is to make the cattle heavier.
Weights Increasing Rapidly
In the latest USDA slaughter data, steer carcass weights increased another three pounds. At 770 pounds, they are now five pounds above last year. Since the spring low this year, steer carcass weights have increased 32 pound compared to a 14-pound increase last year and 19-pound increase the year before. With steer carcass weights increasing at the third fastest rate in recent history, the industry can ill afford a slow down in marketings.
Beef Production Above Year Ago
Since the start of the third quarter beef production has been slightly above last year. Even though cow slaughter stayed well below last year, the increase in carcass weights combined with an increase in steer and heifer slaughter not only pushed beef production above last year but also above the second quarter.
During the first six weeks of the third quarter, beef production has averaged about nine million pounds a week above the second quarter. If this rate continues, beef production during the third quarter will be 130 million pounds above the second quarters.
Today's second chart shows the net change in beef production and fed steer prices from the second quarter to the third quarter. This chart was shown in the June 13 issue with beef production estimated to decline in the third quarter. With the third quarter almost half over, this conclusion appears to be incorrect.
If beef production increases 2% in the third quarter, fed steer prices should average 2.9% below the second quarter.
This indicates and average price of $64 which means prices have limited upside potential above $66.
August 8, 1997David Hales and Tom Horton
Hales Cattle Letter
P.O. Box 1623, Amarillo, Texas
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