Much Grain, Fewer Cattle May
Argue For Retained Ownership

By Jose G. Pena
Extension Economist

With one hundred percent of the U.S. corn crop past the dent stage, and barring any major weather disaster, it appears that USDA's September 11, 1998 corn production forecast of 9.738 billion bushels will become a reality.

This will be the second largest crop on record.

Stocks of corn, wheat, soybeans and feedgrains have been increasing gradually and have caused prices to collapse. USDA's 9.7 billion bushel corn forecast in September is 1.5 percent higher than last month's estimate of 9.592 billion bushels and four percent higher than the 9.366 billion bushels produced last year.

While the forecast of sorghum production is down due to reduced plantings, the forecast for wheat and soybean production is up 1.5 and 6.7 percent, respectively. USDA's September 11, 1998 forecast of U.S. feedgrain production is up 2.4 percent from last year and up 1.6 percent from 1996, when corn and feedgrain prices were much higher.

Abundant supplies of corn, a reduced livestock inventory ( meaning reduced domestic demand), and a meltdown of the economics of some of our principal export customers in Southeast Asia have caused the price of corn to drop to about the loan rate, and raise the potential that prices may fall further.

While cheap corn may be a disaster for farmers, relatively inexpensive livestock feed this fall and winter is providing some flexibility for cattle producers. Cost of gain through feedlots, for example, is substantially lower than last year.

In addition, the fed cattle market started to show signs of improvement recently after the weakening this summer. Lower feed prices, together with the potential for an improvement in the fed cattle market this winter, indicates that cattle retained ownership enterprises this winter through next spring may be profitable, especially since the forage situation has improved substantially as a result of excellent rains in August and September.

(In some places, at least; West Texas still has 1950s written all over it. — Ed.)

Bulging supplies of beef and drouth-driven liquidation had a large influence on the weakened cattle market this past summer. The near record rate of beef production for the first half of 1998 may be behind us as the effect of cattle liquidations, which began in 1996, are finally felt with fewer cattle entering the market.

Prices for slaughter weights were off slightly this past two weeks. Although not shown on the graph, prices finally regained the 60-cent barrier recently for the first time in quite a while. The price improvement appeared to be triggered by an expected slowdown in fat cattle on feed.

The slight weakening of the market afterward appeared to be related to USDA's September 18, 1998 Cattle on Feed report indicating that the slaughter cattle marketings had not decreased as fast as the market was anticipating. Marketing of fed cattle during August totaled 1.94 million, four percent below 1997 but one percent above 1996. Market analysts, however, are expressing confidence that markets will improve later this fall.

Reduced marketings appear to be gradually taking place as cattle liquidations form 1996 are cleared out of the system, but liquidations from 1998 are still in the system, thereby slowing down market recovery. Cattle and calves on feed for slaughter market in the United States for feedlots with capacity of 1000 or more head totaled 9.02 million head on September 1, one percent below September 1, 1997 but 15 percent above September 1, 1996.

Reduced marketings of heavier slaughter weight cattle and reduced placements due to lower cattle numbers indicates that beef production this winter and next spring will come more in balance with demand. According to the cattle on feed report, placements in feedlots during August totaled 2.03 million head, 16 percent below 1997 and 10 percent below 1996. Net placements were 1.98 million head.

While placements in August were down significantly, another indicator that the expected slowdown in fed cattle marketings is not happening as fast as expected is that feedlots are still relatively full. Cattle on feed September 1 in the historic seven states for feedlots with capacity of 1000 or more head totaled 7.75 million, down one percent from the previous year but 17 percent above September 1, 1996.

An expected lower cattle inventory and abundant supplies of inexpensive feeds support an improvement in the cattle market this winter. Retained ownership enterprises through winter forages may be profitable. A careful analysis of the enterprise is highly encouraged. If the stockers perform well, continued retained ownership through the feedlot could be evaluated to capture any additional profit potential.