The cattle market lost a little ground during June. Both fed Choice steers and feeders in the Amarillo feedlot area ended the month about a dollar lower. Even the feeder-fed price premium shrank to only about $10, after recording a $17 spread in April.

A New Look At '98 So far, the cattle situation for 1998 has been a far cry from being as predicted - "a great year." Unfortunately, several unforeseen factors are turning the year into a dismal failure. Let's look at some of these problem areas and their likely outcomes.

1. Ranchers in the Southwest are already facing possibly one of the worst drought years in history. The lack of rain and extreme, often record high, temperatures are forcing many operators to already seek hay sources. Thanks to the same unfavorable weather conditions, hay cuttings have been slim or not at all. The Texas Department of Agriculture has recently established a "Hay Hot Line" (877/429-1998) for ranchers to locate hay supplies.

Feeding cattle in the summer is not in the financial plans of most cattlemen. It raises the cost of keeping the cow and forces some early sales of calves. Such premature selling usually means lighter sales weights and reduced returns.

2. Feedlots in the Southern Plains are recording losses of about $70/head. That is down considerably, however, from the $100/head losses reported early in the year. Summer breakeven costs for lots are projected to be in the $67-68/cwt. range. With cattle prices in the low $60s, profits are still a long way off. This will ultimately impact negatively upon feeder prices.

3. Beef demand is not holding up well. Per capita retail consumption of beef fell from 67.7 lbs. in 1996 to 66.7 lbs. in 1997. Estimates for this year are about 66.4 lbs. Choice retail beef prices averaged slightly lower in 1997 than in 1996 and were at their lowest level since 1989. So far this year, prices have been running a little over 1% below the levels of last year. (This is hardly a good sign and suggests our efforts at changing consumer's minds about beef are not doing much good.)

Cattle Feeding Cattle and calves on feed for the slaughter market in the U.S. in feedlots with a capacity of 1,000 head or more totaled 9.70 million head on June 1, 1998. That was only 1% above last year's figure and is less than in the previous two months.

The largest gain came in Texas which recorded an 8% increase. Nebraska also had a larger number on feed but only 2% more. In contrast, Kansas reported a 6% decrease in feeding and Colorado a 3% lower number.

Fed-cattle marketings during May were only 1.95 million head, down 5% from a year ago and 4% more than in April. This lower marketing level suggests that the June and possibly even July movements may be up considerably.

Cattle and calves placed on feed in May were 2.03 million head. That represents a 9% increase in placements. The gain in Texas was a spectacular 30% and in Kansas an 11% gain. All this seems strange in face of the current poor profit picture of feedlots. It could mean that these operations have locked in some profits on these cattle either by forward selling or through futures contracts.

Despite this large gain in placements, the two lightest weight groupings of calves placed on feed were below year- ago levels. Only the 700- to 799-lb. and the 800-lb. and more classes were up, 13% and 24%, respectively. Obviously, feedlots are betting on a shorter feeding period by purchasing heavier feeders. Prices for these heavyweights have actually been slightly above the lighter calves for the last couple of months.

Forecasts Our fed-cattle marketing equations have been fairly good in projecting the likely outcome of feedlot movement. June marketings are expected to be up again from May and very close to year-ago levels. By July, the extra large movements should be over. Fed-cattle sales could then fall considerably below the 1997 level and even under the June marketings.

This reduction in feedlot trade should allow some fed-cattle price improvement over the next couple of months. While normally this is a seasonally weaker period, it may well follow the path of last summer with a slight gain in the July-September period.

Feeder cattle and calves have now fallen below year-ago price levels while still at a premium to feds. This situation will probably remain throughout the summer months or until feedlot break evens drop significantly or fed-prices improve. To some degree, both of these alternatives are projected and thus, things could get better and may allow price premiums to again increase slightly. They will remain low, however, as long as feedlot profits are under pressure.