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BSE still impacting cattle markets

The week’s average fed steer price was $75.28 or more than $5 below the previous week’s price and more than $10 below the price from two weeks prior, according to John D. Anderson, agricultural economist with Mississippi State University in Starkville, Miss.

Volume, he says, also appears to have dropped and is considerably below year-ago levels. Last Friday’s National Slaughter Cattle Review indicated week-to-date negotiated sales of 171,630 head compared to 175,022 in the previous week and 180,031 head at the same time last year.

Slaughter volume also was down, says Anderson. The Feb. 6 Estimated Daily Livestock Slaughter under Federal Inspection report estimated weekly slaughter at 601,000 head, down only 1,000 head compared to the previous week but 50,000 head below last year’s level.

“Calf prices were also a little weaker for the second week in a row in most locations,” he says. “However, calf prices did hold up much better than fed cattle prices. At Oklahoma City, feeder steers and heifers were called steady to $1 lower. Lighter calves were off a little more than that – steady to $3 lower. Volume at Oklahoma City was quite small, however, due to the threat of a winter storm.”

Around the country, calf prices were a mixed bag, says Anderson, both negatively influenced by local weather conditions and positively influenced by the beginnings of demand for grass-fed cattle.

At Georgia auctions during the first week in February, feeders were off $1 to $3 while stockers were off $1 to $5. In Lexington, Ky., feeders were down $1 to $3, but stockers were steady to $2 higher, reports Anderson.

In West Plains, Mo., feeder steers and heifers were generally steady to $2 lower. Just as in Oklahoma City, light calves were off by a bit more, with 350 to 400-pound steers at $3 to $7 lower. Heavier stockers, weighing in between 450 and 550 pounds, were steady to $2 higher, says the economist.

At Mississippi auctions during the first week in February, prices on feeders and stockers were reported steady to $2 lower. Mississippi feeder steer prices were reported by USDA Agricultural Marketing Service as follows: 300–350 pounds, $119-$129; 350-400 pounds, $114-$120; 400-450 pounds, $110-$120; 450-500 pounds, $105-$111; 500-600 pounds, $91-$101; 600-700 pounds, $85-$95.

“Cattle futures were, to say the least, volatile during the same week. After drifting down early in the week, most contracts fell by the limit of $1.50 on Wednesday. On Thursday, all contracts were back up sharply, though only March and April recovered the full limit lost the previous day. The general consensus seems to be that Wednesday’s sell-off was primarily a reaction to a report by the international panel reviewing USDA’s BSE investigation.”

The report, says Anderson, included several specific recommendations related to the control and eradication of BSE. Key recommendations included the following:

  • The exclusion from human food and animal feed supplies of specified risk materials (i.e., tissues such as the brain and spinal cord that “represent the greatest BSE exposure risk to humans and animals”) from all animals over 12 months of age. (Current guidelines only deal with specified risk material from animals over 30 months of age).
  • Extending the feed ban so than no mammalian or avian meat and bone meal is included in ruminant feed. (Currently, meat and bone meal from non-ruminant species can be included in ruminant feed).
  • BSE testing of all slaughter animals over 30 months of age from high-risk populations and increasing surveillance among cattle of all ages.
  • The banning of mechanical tissue processing methods.
Overall, says Anderson, the report seemed to be complimentary of USDA’s BSE investigation and control efforts up to now. However, he adds, the futures market seems to be reacting to two key factors.

“Key trading partners may be unwilling to accept product from the United States until all recommendations are implemented, and, the panel’s belief that more BSE cases likely will be found in North America,” he said.

On a positive note, however, the report recommended that USDA quickly conclude the investigation—a necessary pre-requisite, says Anderson, to the resumption of trade. Also, the report included a fairly strong statement in favor of “the discontinuation of irrational trade barriers when countries identify their first case of BSE.”

By last Friday, the market had mostly absorbed the BSE report and was again focusing on the decline in cash market prices, he says.

The Jan. 1, 2004, inventory report provided some long-run support for the cattle market, says Anderson. The all cattle and calves inventory was down 1.3 percent, indicating that herd liquidation continued through 2003.

“Most of the decline, though, was due to a reduction in dairy cow numbers. The size of the beef herd was fairly stable, declining by only 0.37 percent from last year. On the other hand, beef replacement heifer numbers were down by almost 2 percent. The 2003 calf crop was also down slightly, by 0.8 percent.

“The decline in beef cow numbers gives us the smallest beef herd since 1964. It also extends the liquidation phase of the current cattle cycle to nine year – making this an unusually long cattle cycle.”

So far, says Anderson, beef production has remained high despite smaller numbers of cattle. This is due to increasing productivity and generally heavier slaughter weights. When herd expansion begins, he says, production will fall as more females are kept out of the slaughter mix.

“Will that happen this year? It may. But you could have said the same thing about any of the last four years. Heifer retention decisions are affected by a number of things, including calf prices, pasture conditions, the profitability of feeding cattle, and the financial position of cattle producers. All of these factors are difficult to predict.

Therefore, it is difficult to predict when herd expansion will begin. When it does begin in earnest—whether this year, next year, or the next—it will be supportive of cattle prices,” Anderson adds.

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