Cyclical transitions in cattle slaughter appear to be very much on schedule. Following more than cyclical increases in beef cow slaughter in 1996 due to record grain prices and poor forage conditions in much of the country, beef cow slaughter is beginning to move below a year earlier. Although the transition away from herd liquidation likely began in mid-February, the cattle inventory will continue to decline at least through 1998 and likely through much of 1999. Beef production will be supported through much of 1997 by large inventories of cattle on feed. On March 1, 1997, cattle on feed in the historic 7 States with over 1,000 head of capacity were up 8 percent from a year earlier,and up 7 percent from 2 years ago. Cattle and beef prices are already beginning to reflect the impact of lower grain prices and a changing slaughter mix. The central Illinois corn price in March is likely to average near $2.90 a bushel, down from the $3.92 average a year earlier. Although world grain stocks are rising, U.S. stocks remain relatively tight. Prospects for the 1997 crops will begin to come into focus with release of the Prospective Plantings report on March 31 and weekly Crop Progress reports in April through May. Abundant moisture in most areas is already supporting strong prices for lighter-weight stocker feeder cattle, with 500- to 550-pound steers in March averaging in the upper $80's per cwt, up from $59.30 a year earlier. Prices for 750- to 800-pound yearlings are up about $15 per cwt from March 1996's $55.78. Slaughter cattle prices are up by a lesser degree, Choice slaughter steer prices are up about $5 a cwt, while Utility cow prices are up about $2 to $3. Feeder cattle supplies will continue to tighten over the next couple of years, leading to declining beef supplies and further price gains. Retail prices for Choice beef have been fairly flat with a year earlier, but processing beef prices are rising already in anticipation of increased fast food specials and lower cow beef supplies. Prices for 90 percent lean beef averaged about $80 a cwt in March 1996, but near $100 this year, with prices having peaked in early March near $110. Export demand likely remains lackluster, thus reducing the necessity of carrying cattle to heavier slaughter weights to reach the Choice-Prime grade. Retail prices are likely to rise modestly through the third quarter,with a sharper rise in the fourth quarter and through 1998. Export demand will remain uncertain until consumer confidence in many countries over BSE and E-coli problems is restored. Reduced world beef demand and stronger U.S. prices will cause larger supplies of processing beef to be imported into the U.S.

First-quarter slaughter is below earlier expectations, but average dressed weights are heavier. As a result, pork production is only slightly below earlier forecasts. Hog prices are below expectations. The weakness likely stems from packers bidding less aggressively for hogs to raise slaughter margins; weaker export demand, especially to Japan due to the lower yen relative to the dollar; and large supplies of other meats at relatively lower prices. Weekly hog slaughter is rising seasonally and is likely near the first-half peak. Hog prices are dropping, but are expected to dip into the mid-$40's per cwt, before rising seasonally later this spring as pork production declines. Wholesale pork prices also are weakening and are becoming more competitive with other meats. However, retailers may be reluctant to schedule features because of uncertain future pork production. The March Hogs and Pigs report to be released on March 27 will provide additional information concerning slaughter rates and pork production during the remaining months of 1997.

March 20, 1997
Economic Research Service
USDA, Washington, D.C.

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