Information Possibly Outdated
The information presented on this page was originally released on April 26, 2002. It may not be outdated, but please search our site for more current information. If you plan to quote or reference this information in a publication, please check with the Extension specialist or author before proceeding.
Cattle markets falter despite expectations
MISSISSIPPI STATE -- Last fall, Mississippi cattle producers had every reason to be optimistic about 2002 prices, but skittish markets have taken every opportunity to go the wrong direction in recent months.
"In spite of Sept. 11, beef demand held up well in the fall," said John Anderson, agricultural economist with Mississippi State University's Extension Service. "We saw declining cattle numbers in the feedlots and a small calf crop last fall. We certainly expected a very good spring, since April is usually the month when the market peaks."
On March 11, June live cattle futures contracts were trading at $71 per hundredweight. By April 22, those prices had dropped to $61, which would equal $120 less for a 1,200-pound steer. Cash fed-cattle prices and prices for calves also have been much lower, following the decline in the fed-cattle market.
"Usually, it's pretty easy to find out what causes the market to drop this dramatically, but this time there is no smoking gun. It's difficult to put our finger on any single cause," Anderson said.
One of the most important factors seems to be the Russian ban on poultry that forced more meat on the domestic market.
"We saw the ban coming and anticipated an impact, but the ban lasted much longer than we expected. We also underestimated how much the consumers would choose cheaper poultry over beef," he said. "We've reached a point where we are looking at large meat supplies overall, including beef, poultry and pork. Future price improvement will depend on getting meat supplies down."
Anderson said the psychology of the cattle market is very negative. Traders seem to be looking for reasons to panic. These reasons may not even be related to the industry, such as when the market went down after a small plane crashed into a building in Milan, Italy.
"Even though hundreds of foot-and-mouth disease tests are done every year in the United States, when word got out that some Kansas cattle were being tested in March, the market took a hit. As with all previous tests in this country, the results were negative," he said. "News on April 19 of a British woman in Florida being diagnosed with mad cow disease shook markets up temporarily, even though nobody doubts that she contracted the illness some years ago in the United Kingdom, not the United States."
The U.S. Department of Agriculture's March Cattle on Feed report predicted a higher-than-expected, 14-percent increase in placements of cattle into feedlots in February compared to the previous year. Placements refer to the number of feeder cattle entering feedlots; they are marketed as fed cattle months later at the end of the feeding process.
Drought conditions in parts of the country were forcing fairly heavy cattle out of pastures and into feedlots. The anticipation of more beef available this summer caused a strong negative reaction from the market.
"People seemed to have forgotten that February 2001 placements were abnormally low, so that exaggerated the year-to-year increase. It was a big placement figure, but not as big as it appeared at first glance," Anderson said.
Marketing decisions hinge on the level of risks cattle producers are willing to take.
"If you are not in a financial position to withstand the risk associated with feeding cattle, then the safest course of action is to sell them. We will probably have continued pressure throughout the summer as large total meat supplies resulting from the poultry situation continue to affect the market," Anderson said. "Other producers will hold their cattle and hope for a price rally in the fall. If meat demand continues strong through the remainder of spring and summer, supplies should be cleaned up enough by summer's end to support better prices."