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The Cattle Business - After 9/11

Livestock Update, November 2001

Bill R. McKinnon, Extension Animal Scientist, Beef, VA Tech

How have the attacks of September 11 and subsequent events impacted the cattle market? Certainly there have been no changes in the cattle and beef supply situation in the country, but how has demand been affected?

It would appear that the food service industry took the biggest immediate hit. With great uncertainty and some anxiousness, folks simply limited their dining away from home. For a time, convention and vacation traveling almost came to a halt. With over 50% of beef being consumed away from home, the industry got nervous.

It seemed that every U.S. airline announced cutbacks and personnel layoffs within a week of the attacks. Of course, those airline cutbacks reverberated throughout other industries that interact with the airlines. Some economists predicted a recession for an already anemic U.S. economy. Logic suggests that a weaker economy is less supportive to beef sales.

The cash fed cattle and futures markets took the bad news right on the chin. The cash fed cattle market was already staggering under the pressure of near record numbers of heavy slaughter ready cattle and 6 to 10 pound heavier carcass weights compared to last year. Additionally, beef exports for 2001 are lagging significantly behind 2000, being the victim of a stronger U.S. dollar compared to foreign currencies. About the same time as the terrorist attacks, Japan identified a dairy cow with BSE and the demand for beef of any kind in Japan took a hit. The US Meat Export Federation reports a 10-20% decline in imported beef sales Japan. In two weeks time the cash fed cattle market dropped $4 per cwt. from a level that was already creating red ink for cattle feeders.

Both the fed and feeder cattle markets plummeted roughly $5.50/cwt. in the two weeks following the attacks. The fed cattle futures reacted to the concerns of the weaker economy and reduced beef demand. The feeder cattle futures reacted in sympathy to the feds. By early October, the futures had rebounded to within $2.50 of their levels before September 11. Next came the reports of anthrax contaminations and the markets fell again. As of this writing, the cattle futures markets are at the lows set two weeks after the attacks.

In the Virginia feeder cattle markets, buyers became wary. Some potential buyers simply sat on their hands because other buyers were doing the same. During the first week of October, steer prices in special graded feeder cattle sales were $3-5 per hundredweight lower than during the first week of September. Our market typically experiences some weakness from September into October, but not normally of this magnitude. During the second week of October, the market began staging a modest comeback. It remains to be seen what the impact will be of additional news events.

Virginia Special Graded Feeder Cattle Sales Weekly Averages
LM1 Steers
  Sept. 3-8 Oct. 1-6 Oct. 8-13
500-600 lb. Steers $98.93 $89.27 $91.00
800-900 lb. Steers $82.90 $79.80 $81.39
Source: VDACS

Producers need to keep the situation in perspective. Yes, the market is reacting to the potential of decreased beef demand. Yes, there are more than ample supplies of fed cattle through the end of the 2001. On the other side of the coin, the industry has rapidly used up an increasingly shrinking supply of feeder cattle. Monthly, on-feed cattle placements finally fell during August as compared to the previous year. August placements were down 10% from 2000 and off 9% compared to 1999.

There will be reduced supplies of feeder cattle during 2002. Contrary to earlier expectations, cow/calf operators currently show little interest in herd rebuilding. Year to date cow slaughter is still running 2.5% ahead of last year's pace. The percent of heifers in feedlots instead of being retained is still at a historically high rate.

The current market may be providing some excellent opportunities to put together light weight feeder cattle at discounted prices. Operators with feed and forage supplies that enable them to add pounds for an additional six to nine months may be able to take advantage of the situation.

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