Cow-calf producers will be in the driver's seat the next few years, says Topper Thorpe, Cattle-Fax executive vice president. Smaller beef supplies should result in improved prices for cattle feeders, as well.
The familiar challenges of lagging demand, growing supplies of competitive meats and international uncertainties will modify the upside potential on profit for the year, however, Thorpe says.
Two unexpected conditions helped muddle the 1999 expectations, Thorpe says. Feedlot carryover in 1998 was 35% above the five-year average, and slaughter weights were also higher than projected. This added an extra 856 million lbs. of beef in 1998.
Cattle were fed longer because feeders thought the market would get better, Thorpe says. 'This added 16 million pounds of beef a week just from that extra weight,' he adds. This factor alone cost the industry $3-4/cwt., after factoring in a $2-3/cwt. lower offal market in the global marketplace, he says.
The feedlot carryover will decline a bit in early 1999, but will still be relatively large, Thorpe says. Total beef production will be down 3-4% this year, contingent on what happens to slaughter weights. But competitive meat supplies will likely be steady to 1% higher, putting total meat supplies steady to 1% higher this year.
'This is a challenge we must watch the rest of the year,' Thorpe says. '2001 should be close to cattle cycle lows.'
Fed cattle prices should average $66/cwt., with summer lows at $63-64, then back to the upper $60s, says Cattle-Fax analyst Randy Blach.
Meanwhile, the calf price outlook looks favorable. Blach doesn't see weakness in calf prices into the grazing season. 'A lot of you retained ownership and they are pretty good property today,' he says.
But calves won't get to the $100-105/cwt. levels of the late '80s and early '90s, Blach adds. He projects prices on 500- to 550-lb. calves this year in the high $80s to low $90s, depending on location.
Of cow/calf operations, 75% of operations will be profitable this year, compared with 50% last year, Blach says. High-return producers have averaged $54/head profit over low-return producers since 1980.