Calf Market Outlook Better
For Those Who Can Hold Them

By Jose G. Peña
Extension economist

Despite a substantially lower cattle inventory, prices for calves have collapsed during the past two months. The collapse appears influenced by higher numbers of calves on the market as a result of drouth-induced liquidations and lower bids for feeders due to very tight feedlot profit margins.

All cattle and calves in the United States as of July 1, 1998, totaled 107 million head, 1.8 percent below the 109 million on July 1, 1997 and four percent below the 111.5 million of two years ago.

After showing healthy improvements following the cattle market crash of 1996, prices for calves have dropped at least 20 cents per pound during the last two months, primarily a result of continued drouth-induced liquidations in the Southern Plains and Texas, lower feedlot bids as a result of negative close-outs, and a bleak short-term cattle market outlook. The cattle market collapse of 1996 was triggered by similar circumstances of a severe drouth, aggravated by high corn and feed grain prices and supplies of beef.

Now, we have a similar but significantly different market situation. Cattle numbers are significantly lower, and corn and feed grain prices have dropped substantially. In addition to a higher number of calves on the market this summer, the cattle market is facing a bottleneck with large supplies of overweight cattle as feedlots add extra pounds to slaughter weights with relatively inexpensive corn. U.S. beef production in June, at 2.25 billion pounds, was five percent above June 1997.

Since overall cattle supplies are down, as indicated in USDA's July 1, 1998 mid-year inventory report, it appears that the current market slump may be temporary. Unless drouth conditions continue through the summer and fall and spread beyond the Southern Plains and Texas, calf prices may improve this fall. If grass is available, it may prove profitable to consider holding calves a bit longer and/or consider adding extra gain through a retained ownership enterprise this winter and market the calves early next spring.

Feedlots appear full, and fed cattle marketings are sluggish. Marketings of fed cattle during June, for example, totaled 2.03 million, slightly below the same period in 1997 but two percent above 1996. Placements in feedlots during June totaled 1.56 million, eight percent above 1997 and 20 percent above 1996.

Cattle and calves on feed for the slaughter market in feedlots with capacity of 1000 or more head totaled 9.16 million head on July 1, 1997, two percent above July 1, 1998 and 17 percent above July 1, 1996. The inventory included 5.45 million steers and steer calves, up one percent from the previous year. This group accounts for 59 percent of the total inventory. Heifers and heifer calves accounted for 3.679 million head, up 5.1 percent from 1997 and 32.1 percent above 1996.

The U.S. cattle inventory is continuing to decline. A significant indicator of the continuing liquidation is that all cows and heifers that have calved, at 43.3 million head, were 1.6 percent below the 44 million on July 1, 1997 and 3.8 percent below the 45 million two years ago. Beef cows, at 34.1 million head, were down 1.7 percent from July 1, 1997, and 4.2 percent below two years ago.

Other indications of a continued cattle liquidation underway include:

- All heifers 500 pounds and over, at 16.7 million head on July 1, 1998, are down 2.3 percent from an inventory of 17.1 million last year and down 3.5 percent from inventory of 17.3 million two years ago.

- Beef replacement heifers, at five million head, are down 5.7 percent from an inventory of 5.3 million last year and down 9.1 percent from an inventory of 5.5 million two years ago.

- Steers weighing 500 pounds and over at 14.5 million head are down two percent from last year and down four percent from two years ago.

- Bulls weighing 500 pounds and over at 2.2 million head are down 4.3 percent from last year and down 8.3 percent from an inventory of 2.4 million head on July 1, 1996.

- Other heifers, (feedlot heifers) at 8.1 million head, are down 1.2 percent from last year to the same level of two years ago.

Calf Crop Down

The 1998 calf crop is estimated at 37.9 million head, down 2.1 percent from a calf crop of 38.718 million in 1997 and down 4.7 percent from a calf crop of 39.776 million in 1996. According to USDA's mid-year report, this would be the smallest calf crop since 1951. Calves born during the first half of the year are estimated at 27.9 million head, down two percent from 1997 and down five percent from 1996.

Corn Prices Down

Corn and feed grain prices have moved down since last fall. With 80 percent of the U.S. corn crop past the silking stage as of July 28, 1998, compared to 54 percent last year, and a long term average of 51 percent for this time of the year, it appears that the U.S. corn crop is making excellent progress.

More rain and cool weather was reported in the Cornbelt late last month, which will help the crop substantially. The market remains weak. Prices for most corn futures prices in the Chicago Board of Trade (CBT) dropped to new life of contract lows recently. December '98 corn futures prices, for example, dropped to a new life of contract low of $2.27 per bushel.