Prepared by Hales Cattle Letter
Beef Production Up–Fed Prices Down
Today's chart shows an inverse relationship between beef production and fed steer prices. As beef production increases from the previous year, fed steer prices decrease and as beef production decreases fed steer prices increase. From the middle of February through the middle of June, beef production was well below last year and fed prices were well above last year. However, since late June beef production has been above last year and fed steer prices have basically stayed below last year. If this relationship is valid, what does it mean for the fourth quarter?
Beef production will increase at lest 100,000,000 pounds from 1996 levels in the fourth quarter of this year. Cow slaughter will be down from last year but increased steer and heifer slaughter will more than offset this decline. However, the significant increase in beef production will come from much heavier carcass weights this year during the fourth quarter.
Fed Cattle Weights Are The Key
Last year weights increased little in October and declined more in November and December than normal. Cattle feeders were in such a hurry to sell fed cattle that by December 1 many feedlots reported sales three to four weeks ahead of projections. As a result, steer carcass weights were 27 pounds below 1995 and 19 pounds below the three- year average during the first week of December.
This year market conditions are different and weights will not decline in November and December as they did last year. In-weights were much heavier this year than last year which means out-weights will also be much heavier.
Cattle feeders are not as aggressive selling fed cattle this year either. Last year December futures were about $5 under fed prices and February futures were about $7 under. This year December is about $3 over and February is about $6 over fed steer prices. Unless the basis relationships change rapidly, there won't be any sales of fed cattle three or four weeks early this fall. In fact, by the first of December this year, cattle feeders may report selling fed cattle two or three weeks late. Weights will be much above last year as a result.
As of the last week in August, steer carcass weights were three pounds above the same week last year and two pounds above last year's October peak. During the fourth quarter fed steer carcass weights could average between 20 and 25 pounds above last year.
How Low Will Prices Go?
Last year fed steer prices peaked at $73 in early October and fell to $65 in late December. Increased beef production and a possible softening of demand after the E-coli scare this year will probably push fed prices back to the lows of the year at $62 by late November or early December.
September 19, 1997
Hales Cattle Letter
P.O. Box 1623, Amarillo, Texas
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