The cattle market ended 1998 with soft undertones. Some strength came right at year's end but due to holidays, gains were greatly limited.
Feeder cattle and calves followed feds lower most of December. Many auction markets were closed during December's final week so price information on these kinds was at a premium. December's price average on feeders will likely be almost $2.50/cwt. less than November.
Forecasts - Good Or Bad? Last month, we covered the latest USDA cattle and beef forecasts. Some cattlemen welcomed the additional information and incorporated it into management decisions. Others, however, ignore such forecasts and question the accuracy.
USDA began such outlook work in 1923. To make their reports useful to the individual farmer, they were stated in fairly specific terms. Due to a coincidental release of their 1927 report and a downward movement of the cotton market, many people assumed the forecast caused the price break.
In subsequent years, the event caused many grower groups to condemn price forecasting. Some urged USDA to expand the activity, but the controversy still rages. As a result, outlook forecasts are a little more vague and use more general language.
An independent research study has just been released in the December issue of the Journal of Agricultural and Resource Economics. This analysis, "Trends in USDA Forecast Accuracy," yielded the following conclusions:
* "Findings of the study show that USDA forecasts underestimated production and supply in the 1980s, but this bias has now disappeared.
* "The variance of forecasts also has declined. Thus, the accuracy of the forecasts has improved. The most recent USDA forecasts were found to meet the criteria of optimal forecasts, while those of the 1980s were not optimal."
The issue of forecast accuracy is probably best summarized by economist F. L. Thomsen in his 1926 book. He said: "Forecasts are helpful to any individual who uses them if they are accurate more often than the individuals' own estimate would have been without them, provided he understands their limitation."
The irony for any forecaster is this: If people really believe your estimate and make management decisions to capitalize on it, their actions could make the forecast wrong. So, if you're right, you could be wrong; and if you're wrong, you may be right.
Cattle Feeding Cattle and calves on feed in feedlots with capacities with 1,000 head or more for the U.S. slaughter market totaled 11.03 million head Dec. 1. That's 4% below a year ago but 3% higher than a month earlier. Only two states, Colorado and South Dakota, reported a larger number on feed than a year earlier, but almost every state in the survey recorded more cattle on feed than a month ago.
Marketings of fed cattle in November totaled 1.7 million head - 2% above 1997 but 4% below the month-earlier level. New Mexico, California, South Dakota, Idaho and Texas had the largest increases.
Placements of cattle and calves into feedlots in November totaled 2.05 million head, 7% below November 1997. Two states - Nebraska and New Mexico - actually recorded larger placements.
During the month, placements in the less than 600 lbs. weight classification totaled 740,000 head; the 600-699 lbs. group totaled 557,000 head; the 700-799-lb. group totaled 437,000 head; and the 800 lbs. or more class totaled 317,000 head. The extremely lightweight calf grouping was up substantially despite total placements being down.
The New Year Feedlots should soon run short of finished cattle, greatly helping the fed cattle market and allowing permanent price improvement. Breakeven feedlot costs have fallen sharply and are at $60/cwt. in the Southern Plains. This indicates some profit is being recorded and suggests a considerably changed attitude among feedlots.
This feedlot bullishness, along with limited supplies of feeder cattle and calves in 1999 could push feeder premiums back up to early 1998's high levels. The 1998 calf crop was down and expectations for 1999 are even lower. If the industry isn't hit with another dry year or other problems, it could be a pretty good year, at least for ranchers.