The October cattle market brought back a little enthusiasm. Choice slaughter steers in the Amarillo feedlot area pushed upwards from a weak mid-$50 level early to the mid-$60 range as November began. The gain moved monthly average prices up $3/cwt.
Feeder cattle and calves also rallied significantly. The gain in the average monthly price, however, wasn't nearly as dramatic since the volatility during the month was intense.
What's Wrong With The Market? Many cattlemen are still wondering why the market has been so weak this past year. The blame has been laid at over-production of beef, failure of the checkoff, packer concentration and the weather. While each of these has likely had some impact, their influence is probably overstated or misunderstood.
Let's look at the statistics relative to some of these criticisms:
* As of Oct. 17, 1998, federally inspected cattle slaughter was running 2% below a year ago. Calf slaughter was down 5%. While carcass weights have been up significantly, total beef production still appears to be only about 1% greater for the year.
Fed-cattle marketings from commercial feedlots in the U.S. are actually down 1% so far this year. Given the projections for the remainder of 1998, it appears fed-beef production may be down or close to last year's level.
* While some question the performance of the checkoff, the corrective suggestions may not have been thought out completely. For example, a syndicated cowboy personality has recently suggested that checkoff funds be given to food retailers to help merchandise beef.
This implies advertising credits. Food retailers obtain thousands of such dollar credits from manufacturers of the many products they sell. The irony is that they get such advertising credits on a national rate basis but buy the ads on much cheaper regional or state levels.
Instead of costing them millions, retailers actually make money on those large, full-page ads in the newspaper. So, when cattlemen pay retailers such a credit, they shift the cost of advertising from the retailer to the producer.
* Most research studies on packer concentration indicate about the same results. The economies of size displayed by big packers may do more good for the industry than the price harm they might exert on cattle prices.
If you stop and think about it - just as long as a packer doesn't pay more than his competitor - he's content. A packer who has lower costs because he is larger can afford to pay more for cattle. Thus, such firms may actually shore up cattle prices.
* The 1998 drought drastically affected Southwest producers, particularly in Texas. But the eventual rains put 1998 in the history books as a normal year.
The lack of moisture is still being felt. It caused early marketings of calves, heavy culling of breeding cows and negatively impacted the cattleman's attitude toward holding stock over the winter. Its effects, however, will be felt more in 1999 when feeder calf numbers are down, fed marketings are lower and the calf crop is further reduced.
* Probably the most important factor pushing beef prices lower is seldom even thought of - demand. It's a subject that's difficult to address and even harder to prove.
Most livestock economists, however, agree that beef demand is sinking rapidly. Beef is no longer the Cadillac of foods. That may be partly due to the industry's decision to try to compete price wise with cheaper meats.
Choice beef is no longer the restaurant favorite and most retailers have shifted to handling Select or ungraded beef. It's cheaper but less consistent and doesn't do much to build customer loyalty.
Record Heavy Placements Cattle and calves on feed for the U.S. slaughter market in feedlots with capacities of 1,000 head or more totaled 9.75 million head on October 1. That's 2% below October '97 but 10% above 1996. This is the second month of lower numbers.
The inventory included 5.97 million steers and steer calves, down 2% from a year ago; and 3.77 million heifers and heifer calves, down 3% from '97. Steers made up 61% of total inventory, similar to a year ago.
Despite the reduced number of cattle on feed, six states recorded gains from last October - South Dakota, Oklahoma, Texas, Arizona, California and Idaho. All states displayed larger numbers from the previous month.
Ironically, drought conditions in Texas seemingly didn't influence the proportion of steers vs. heifers that moved into feedlots. While the expectation was that more heifers would be sold for feeding, the October data doesn't show that. Texas feedlots had 8% more steers and steer calves on feed than a year ago and 5% less heifers and heifer calves.
Fed-cattle marketing from feedlots in September reached 1.86 million head, 3% above 1997 and 18% above 1996 - the first month of larger-than-year-ago marketings in six months. Eight states reported larger marketings, led by Oklahoma, Texas, California and Colorado.
Fed-cattle marketing equations predict lower October sales and similar-to-lower movement in November. December marketings, however, could be up slightly.
Placements of cattle and calves into feedlots in September totaled 2.65 million head - 2% below 1997 and slightly below September 1996. Placements were up in four states - Colorado, Nebraska, Oklahoma and Washington. Texas placements were down a sharp 9%.
In September, placements of calves weighing less than 600 lbs. were only 433,000 head, down 10% from a year ago. Calves 600-699 lbs. were 4% less. Higher-weight feeders (700-799 lbs.) were down 3%, while the heaviest (800 lbs. or more) were 3% greater. This is the largest proportion of these heaviest weight feeders ever placed on feed since the data was recorded.
'Tis The Season To Be Cautious The fed-cattle market should end the year in a semi-firm mode. Historically, it has been very difficult for cattle prices to rise during the holiday season. Demand is generally lower this time of year. Beef is not the usual Thanksgiving or Christmas meal (except at my house).
The season also holds other pitfalls - many markets close for the holidays. Market news reports are usually discontinued during this vacation period.
Entering 1999, things should be completely different. Fed-cattle prices will most likely be improving into the spring months with feeders leading the way. Feedlots are likely to move back into the profit side of the ledger early in the new year.
The new year should hold a lot of promise for ranchers. Fewer feeder calves, improved fed-cattle prices, cheaper feed and basically less competition from neighbors. For those of us left, it could be a great year.