December 1, 2006

US feedlots in trouble as beef goes into oversupply next year

Feedlots in Nebraska and the south-western parts of the US could face trouble next year as beef demand continues to fall, bringing prices down with them.

Already, October marketings are below expectations despite having one extra day, indicating worse to come, analysts said.

Analysts said the inventory and the number of cattle that need to be sold over the next three to four months is record large and will have to go against large and much-cheaper pork and poultry supplies.

They also said feedlot breakevens are in the high-$90s, a level well above prices and would mean an immense challenge to the feedyards.

One bright spot amidst all that gloom is the fact that October placements, at just 87 percent of year ago, were supportive to the markets in mid- to second-half 2007.

Analysts are also issuing dire profit warnings, saying that without a big increase in beef demand, which had been falling for seven straight quarters, losses over the next six months could be the most severe in history. 

One suggestion is for feedlots to market aggressively now so as to have a better second half next year. In the meantime, however, the market is just bad for cattle.

Cattle marketings this year through Tuesday totaled 29.647 million head, 3.8 percent more than a year ago.