Production Levels Are key to Recovery

Beef demand has remained consistent and continues to be supportive, so the important market factor during the fourth quarter will be beef production levels.  The industry has produced an average of 534 million pounds of beef per week during the 10 weeks ending Sept. 30.  During those 10 weeks, fed-cattle prices averaged $63.97 per cwt. and the weighted-average beef cutout averaged $107.52 per cwt.  This year’s relationship between production levels, fed-cattle prices and wholesale values compare favorably to the past several years.

Over the 10 weeks ending Sept. 30, the value of the beef produced by the industry was second only to 2001 levels.  It was up compared to 1999 and 2000 levels and 21 percent greater than 1998 levels.  In comparing similar time frames (July 22 through Sept. 30), the total dollar amount flowing into the industry at the wholesale level hasn’t changed much over the past four years.  However, the amount of beef produced per carcass has increased dramatically over that same period.  The increased weight has inflated beef production levels and  limited fed-cattle and beef prices, as well as producer bargaining position.

                 Demand for beef continues to run about equal to 2000 levels, which is supportive.  So what holds the key to fed-cattle prices moving higher during the fourth quarter and into 2003?  Beef production levels have to move into a sustained period of decline. 

            Supply forecasts suggest that this should occur during the next several months, as placements against that time period are smaller than a year ago.  Further support should come from a decline in carcass weights.

            Fed-cattle prices should benefit in two ways from a production decline.  First, wholesale dollars will be spread over fewer pounds resulting in a higher price paid for the available production.  Second, the cattle-feeder bargaining position should improve with the feeder getting a higher percentage of the cutout. 

Feeder cattle and calf values will benefit from the expected decline in beef production.  Corn prices will play an important role in calf values this fall, but a firmer fed market will definitely underpin prices.  Ultimately, the magnitude of the decline in production will largely dictate the price improvement for all classes of cattle.