Cattle Feeders See Better Year
In 1999, But With Some Caveats

By David Bowser

AMARILLO — An economist with the Texas Cattle Feeders Association says there are greener pastures ahead for the cattle business — he hopes.

"The outlook for 1999? I think it will be a better year than 1998," says TCFA economist Jim Gill. "At least, I certainly hope so."

Though Gill is predicting higher prices for fed cattle, he doesn't think the consumer will notice much difference at the meat counter.

"As for beef prices, I think that during the year of 1999, the consumer won't see much difference at the retail outlet," Gill says. "Right now, the retailer is working with a pretty wide margin. As our live prices start to move higher, I think the retailers will maintain the same average price they've had. I hope that what will happen is the industry will get back some of that margin that the retailer is working on right now."

"For most of the past year, fed cattle prices have been below the cost of production," notes Richard McDonald, TCFA president and CEO. "This is very similar to other segments of agriculture. Most all of agriculture has not had a good year."

Despite depressed cattle prices, area cattle feeders in the Texas and Oklahoma Panhandles and Eastern New Mexico continue to produce about 30 percent of all the fed cattle in the United States.

"The cost of production was above the price that we received most of the year," Gill says. "I think an average loss for 1998 was around $100 a head. Right now, we're doing a little bit better than that. The losses are running

about $20 to $30 a head."

A tremendous amount of equity is being lost, Gill says. He believes cattle selling through the first quarter of this year will be crucial to a lot of cattle feeders staying in business.

"I think in the first quarter we'll still have some supplies to work off the cattle market," Gill says. "Of course, the hog market continues to be severely depressed with their record production. Not only are record numbers being slaughtered, but also record weights. The average weight last week of hogs slaughtered was 263 pounds."

The cattle feeding industry has suffered much the same problem, he says.

"Cattle have been at record weights this year," Gill confirms. "I think sometime in the first quarter of 1999, we'll see a downturn in weights."

The livestock economist says he is already beginning to see a seasonal downturn in cattle weights.

"I think in 1999 we'll be back to a more traditional weight on these live cattle, which will reduce production," Gill says.

He also expects to see reduced hog numbers by February or March.

Hog prices are at their lowest levels since the Depression, but Gill doesn't think cattle prices will follow.

He notes that retail beef prices haven't dropped much. If retailers lowered prices, they would move more product, but they would force that lower price back on the producers.

"I think what will happen is the retailers will leave the price where it is, and we will be able to take some of that margin," Gill says.

"I hope that by the second quarter of 1999, we'll see some improvement in cattle prices," Gill says. "Maybe this business will get back to a profitable position."

Some supply problems remain to be worked through in the first quarter of 1999, but he predicts fed cattle prices to be in the mid to high $50s and low $60s range during that period.

"I think sometime in the second quarter, we'll see prices get back to the mid to high $60 range," Gill says. "We might even touch a $70 market, although a lot of people don't think that's possible."

Gill expects live cattle prices to drop back a little in the third quarter with a seasonal decline in the fourth quarter of 1999. He's predicting somewhere between $64 and $69 in the third quarter, then down to $63 to $68 in

the fourth quarter.

"The competitive meat supply is the main problem," he says.

Gill also expects feeder cattle supplies to tighten up next year.

"If the January inventory report that USDA puts out stands uncorrected, you'll see the smallest calf crop in the United States since 1951," Gill predicts. "Eventually, this is going to tighten supplies up."

In the last five months, placements in feedyards have been below year-earlier levels. Eventually, Gill says, this is going to tighten supplies and force live cattle prices higher.

"Our other cost input as far as the cattle feeding industry is concerned is grain," he says. "We had a tremendous grain crop last year, the corn crop especially. Not only was the corn crop an exceptionally large crop, about 9.8 billion bushels, but most of the reports I have indicate it was a quality crop."

That's one of the reasons cattle have performed so well this year, he says.

"The quality of grain and the weather we've had up until today have led to the increased production," Gill says.

Gill expects corn production in 1999 to be near 9.3 billion bushels, given normal weather. Exports could play a crucial role in grain prices and the instability in the Far East and Pacific Rim will likely have a major impact on final prices to area feedyards.

Cattle feeders' concern over the market will keep TCFA looking at marketing alternatives, McDonald predicts.

"When you go through the market where we have been the last couple of years, you're constantly looking for different ways to market our cattle," McDonald says. "We will continue to look at different ways to market cattle."

He says the industry is seeing more alliances and more partnerships.

"We think at Texas Cattle Feeders Association, we need to be able to present different alternatives to our membership," McDonald says.

He says the association will continue to explore and research alternatives through 1999.