October 24, 2007

US cattle supplies to remain tight, sees strong prices in 2008

Tight cattle supplies and strong prices will possibly remain in place through the first quarter of 2008, according to an analysis of the American Farm Bureau Federation (AFBF) analysis from the Agriculture Department's most recent Cattle on Feed report released on October 19.

About 10.97 million cattle and calves were on feed in the country's biggest feedyards--those with the capacity to feed more than 1,000-head at a time--as of October 1. The numbers were 4 percent lower than last year, says the report.

According AFBF livestock economist Jim Sartwelle, more cattle were placed on feed in September than industry insiders expected. He said fed-cattle prices will remain in the low-to-mid US$90 per hundredweight through the rest of the year.

Sartwelle said cattle-on-feed inventories are down in nearly all the key states from October 1, 2006: Idaho is down 21 percent, Colorado is down 11 percent, Kansas is down 6 percent, Nebraska is down 4 percent and Texas is down 3 percent. States with increased cattle-on-feed inventories from a year earlier are Iowa, up 11 percent; South Dakota, up 4 percent; Arizona, up 4 percent; and California, up 3 percent.

Feedyards continue taking in heavier-weight cattle in response to higher feed costs with fifty-four percent of the cattle placed in feedyards last month weighed 700 pounds or more, up from 49 percent in that weight group at that time in 2006.

Sartwelle said he doubts of a larger number of lighter-weight feeders going into feedyards in the next 30 days given tight feeder cattle supplies since late summer.

Further, with reports of less wheat pasture for grazing this winter, industry players will keep an eye on placement weight sections of the next two monthly USDA Cattle on Feed reports carefully for indications that light-weight feeders are being diverted from the wheat field to the feed bunk, said Sartwelle.

The bottom line is the trade expects tight supplies to continue into the second quarter of next year, with the April 2008 fed cattle futures contract trading at a US$3.50 premium to the June 2008 contract, he noted.