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Good and Bad News for Beef Cattle Producers

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Beef prices at retail moved to an all-time high in nominal dollars in May, up 11.3 percent from May 2000good news. For the first five months of 2001, beef prices averaged 11.8 percent higher than a year earlier. Beef consumption for this same period was down about 2 percent bad news. Compared with beef demand in 2000, these statistics combine for a growth of 3.4 percent in beef demand at the consumer level for January through May of 2001 good news.

Demand for live fed cattle was down about 1.5 percent for the first five months of 2001bad news. How can retail consumer demand go up and live cattle demand go down in the same period? The demand for live fed cattle was decreased because 82 million pounds, the equivalent of more than 100,000 head of live cattle, was pulled from cold storage stocks between January 1 and May 31. In addition, beef imports have been up this year and beef exports have been down bad news. Demand for pork and broilers at the consumer level showed a gain of 1.4 percent and a loss of 4.4 percent, respectively, for the first five months of 2001 good news. The culmination is that all segments of the beef industry benefited good news. Margins for packers, processors and retailers were up, as were prices for all weights and classes of live cattle good news.

How long will the good news continue? There are signs that the market currentness of fed cattle is slipping, which is bad news and means that producers are holding their cattle beyond the best marketing date, hoping to receive a better price. That action can backfire when many producers hold their cattle simultaneously. The cattle's combined gain after the optimum marketing weight can quickly cause an oversupply of beef, which drives prices down and leaves producers with less profit than they would have received had they marketed their cattle properly.

Placement of cattle on feed continues to increase bad news. The good news hidden in increased placements is that, to place this number of cattle on feed, lighter steers and heifers are being used, which continues to work deeper into the supply of young cattle that normally would be placed on feed some months later. Another indicator that cattle supplies will remain manageable is cow slaughter data. Cow slaughter for the first two quarters of 2001 was significantly higher than for the corresponding quarters in 2000. Increased cow slaughter in the face of higher calf prices probably indicates the prolonged effects of drought.

The difficulties of balancing costs and management practices in the pursuit of profits in the beef cattle industry remain. The good news is that total inventories probably will not be burdensome for another two or three years.

Thought for the month: Faced with the choice between changing one's mind and proving that there is no need to do so, almost everybody gets busy on the proof. John Kenneth Galbraith