Fed Prices Stronger Than Projected

Several factors have combined to support slaughter steer and heifer prices in recent weeks.  The Livestock Marketing Information Center forecasts for fourth quarter 2005 beef production have been reduced mostly because of: 1) lower than anticipated slaughter steer and heifer imports from Canada and 2) lower than forecast domestic cattle slaughter.  Those changes suggest higher cattle prices than earlier forecast.  However, much of the normal fall rally in fed cattle prices may have occurred earlier than normal this year.

Based on preliminary weekly data from USDA, for the last two weeks of September U.S. slaughter steer and heifer imports from Canada were just over 11,800 head per week.  The most recent comparable years were 2002 and 2001.  The U.S. imported over 19,500 slaughter steers and heifers weekly for the comparable weeks in 2002.  In 2001, that number was about 22,900.  Expectations were that the U.S. would be importing nearly 20,000 head per week following the reopening of the Canadian border.

U.S. supplies of market ready, fed cattle have not been burdensome in recent weeks and the percentage of cattle grading Choice has declined.  In September and early October, packers chased supplies of market ready cattle, especially Choice grading cattle.

Wholesale beef prices and byproduct values did not keep up with slaughter cattle prices, resulting in considerable red ink for packers. Packers have economic incentives to lower cattle slaughter levels to maintain wholesale beef prices and to stand back from purchasing cattle, thereby attempting to dampen further fed cattle price increases.

Source:  Livestock Marketing Information Center