The Cattle Business -- Fall '97 Feeder Cattle Market

Livestock Update, November 1997

Bill McKinnon, Animal and Poultry Sciences, Virginia Tech

What a difference there is from one fall to another. Through the third week of October, special sale feeder calf prices are roughly $22-$26 per cwt. higher than the same period in 1996. Yearling cattle are running $13-$17 ahead of last fall.

As the fall marketing season progresses, the Virginia feeder cattle market is under pressure from several sources. Forces applying downward pressure on feeder cattle include corn price, substantial cattle on feed numbers, red ink in the feedyard. lethargic beef demand, limited local calf demand and the typical mid-October slump.

In early October corn futures moved up sharply in response to the release of the September grain stocks report. The report showed ending corn stocks at 884 million bushels. This represented a 108% increase from the near record low levels of 1996, but was a 43% reduction from the September 1995 report. Globally, corn stocks are down as a result of lower worldwide production led by a substantially smaller crop in China. The most recent U.S. corn crop estimate was pegged at 9.312 billion bushels. This crop would rank as the third largest in U.S. history. The impact of the large impending '97 crop has been offset by the low level of carryover stocks and the increased demand for corn, both within the U.S. and globally.

The October 1 Cattle on Feed report indicated that the rapid pace of placing cattle on feed continues. The October 1 on-feed count was 113% of the 1996 number. September placements were 2% higher than the same period in 1996; while marketings were up 15% over 1996. The pace of placing cattle on feed continues despite modest feeding losses since early summer. Many of the fed cattle to be marketed during the next three months have break-evens at $70-$72, while the current market is $5 below that level.

The cattle on feed report did offer some interesting insight into the continued relatively large number of heifers being fed. The Oct. 1, 1997 report indicated that heifers were 39.2% of the on-feed mix. The corresponding 1996 report found 37% of the cattle on feed to be heifers while the 1993-'95 October 1 average was only 33.7%. This fall's high percentage of heifers on feed is the residual of so few heifers being held back for replacements last fall. Later on-feed reports and the January 1 Cattle Inventory Report will have to be examined to note if the trend away from heifer retention is continuing.

Lethargic beef demand has kept a lid on fed cattle prices, holding them in the mid- $60's. Static domestic demand has been coupled with disappointing performance in the export market. Food safety concerns in Japan has kept beef exports to that country behind earlier expectations. Recent reports from South Korea of the discovery of e. coli O157:H7 in U.S. chuck rolls could cause disruption of exports to the fourth largest export market for U.S. beef.

A cold, wet spring followed by a dry summer and fall in the mid-Atlantic region has created some local feed shortages. Many cow/calf operators who also background some calves are opting out of wintering younger cattle in an effort to conserve feed for the cow herd. Many stocker cattle operators with limited fall grazing and forage supplies have reduced their appetites for light weight calves. The growing season has also created spotty areas of low feed production in Pennsylvania and hence; uneven demand for Virginia feeder cattle.

The typical pattern of the mid-October price slump again seems to be in place in 1997. For example, prices on L&M1 5-weight steers in mid-October is down roughly $3 per cwt. from late September levels. In mid-October in Virginia the feeder cattle marketing pipeline get overloaded. The shortage of trucking to move Virginia cattle out of state is magnified by the glut of cattle coming to town.

One additional item of update information is the status of the Virginia Quality Assured feeder cattle program. To this point over 2025 of the certified feeder cattle have been marketed. Approximately 50% of the cattle have been preweaned while the other half have been tagged with the gold or purple tags without a "W." Compared to L&M1 cattle in special graded sales sold the same week, the VQA cattle have brought an average price premium of $4.34 per cwt. or $27 per head.

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