The cattle market lost more ground in August with slaughter steers giving up another $2. After seesawing in the high $50s for most of August, weakness set in at month's end. Amarillo Choice fed steers began September in a stalled market as meat packers offered $56-58 and feedlots asked $58-60.
Heavier feeder cattle were so scarce in the Amarillo area that reliable price quotations couldn't be obtained much of the month. Lighter calves held steady during the month as feedlots adjusted to the altered availability caused by Southern drought conditions.
The Checkoff Program Considerable controversy continues over the beef checkoff program. A main concern focuses on the fact that the two real "profit centers" in the industry - packers and retailers - don't contribute to the program. Another issue is whether or not the monies being spent are going in the proper direction.
According to USDA, the "farm to wholesale" beef price spread (feedlot price vs. wholesale price) has averaged about 19 cents/lb. during the last five months. The "wholesale to retail" price spread has averaged $1.25/lb.
This means that with a consumer retail beef price of $2.79/lb. (the July level), about 20 cents goes to the meat packer and $1.24 goes to the food retailer. The remainder, about $1.35, is returned to the cattleman (in this case, the feedlot). Breakdowns are not made any further than that but we can estimate from the data. The feedlot return is probably about $1.17 and the rancher gets about 18 cents. Remember, these figures are total returns - not net profit. The cost of producing or operating still has to come out of these returns.
The real irony of these analyses is the length of time each of these levels is involved in handling the cattle business for this return.
* Food retailers usually sell the beef cuts they purchase in two or three days.
* The meat packers buy the cattle, slaughter them and have it sold as beef in less than a week. * Feedlots commonly have about six months of feeding to reach slaughter weight.
* Ranchers must keep a cow for about a year to produce a calf, then usually sell it as a feeder at about six to eight months of age - so that's close to 20 months.
Is it any wonder the real winners in this beef business are retailers and packers while feedlots and ranchers continue to record losses?
As to whether or not the expenditures of the program are directly aimed, the answer is much less clear. There seems to be a general agreement by most market economists and market researchers that "generic advertising" has limited success. This means you can advertise Winn Dixie's sirloin steaks at a certain price and probably prove it was effective. Promoting "just beef," however, will likely have little or no impact.
In the summer edition of the Research Institute of Livestock Pricing newsletter, Wayne Purcell of Virginia Tech addresses the issue of the dramatic drop in beef demand. He said: "... A generic advertising program for an outdated and inconsistent fresh beef offering will not be enough to turn this dismal picture around."
Unfortunately, much of the efforts of the beef checkoff program are directed toward such generic advertising. The effectiveness of the program, therefore, may well be questioned.
Cattle Feeding Cattle and calves on feed for the slaughter market (feedlots with capacity of 1,000 head or more) totaled 8.99 million head on August 1. That's 2% above a year ago but 2% below the month-earlier level. The major gain occurred in Texas with 300,000 head more on feed. Increases were also recorded in Oklahoma, South Dakota, Arizona, California and Idaho. All other states had fewer cattle on feed.
Fed-cattle marketings in July reached 2.05 million head. That's up 2% from last year, 4% above 1996 and up slightly from a month earlier. Our forecast equations suggest that considerably lower marketings may be on hand in August and September.
Cattle and calves placed on feed in July were 1.93 million head, 3% below 1997 but up 24% from June. Only seven states recorded larger placements as Texas led the pack with a 15% gain.
Cattle and calf placements were at lower levels in each of the weight groups except the 600-699 lb. class, which was up 26% over a year ago. The largest declines were recorded in both the heaviest and lightest weight groups.
Weather Influences On The Market Good weather in the Midwest has helped crop production. As a result, prices are being forced lower, which means cattle feeders can expect cheaper grains for their operations this winter.
Drought conditions still plague the Southwest, however. While some rains have come, it may already be too late for additional grazing or hay making. This situation has stimulated earlier marketings of calves and increased liquidation of cows. That will certainly mean fewer feeders available for the fall and winter feeding season.
Despite projected lower August fed-cattle marketings, the Amarillo feedlot area didn't record any significant reductions in sales. That might indicate even lower levels of marketings in September, maybe even October. As a result, the fed-cattle prices could show some recovery moving into fall.
The feeder cattle market could still do better than feds the rest of this year. Fewer feeder animals and cheaper feed costs for feedlots will definitely help feeder prices. Feedlot breakevens are dropping rapidly. Price premiums for feeders may again return to last fall's substantial levels. L