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Cattle Supplies Likely to Remain Tight, Prices Strong Into 2008

WASHINGTON, D.C., October 22, 2007 – Today’s tight cattle supplies and strong prices are likely to remain in place through the first quarter of 2008, according to American Farm Bureau Federation analysis of the Agriculture Department’s most recent Cattle on Feed report.

About 10.97 million cattle and calves were on feed in the country’s largest feedyards – those with the capacity to feed more than 1,000-head at a time – as of Oct. 1. That figure was 4 percent lower than a year earlier. The news was contained in the USDA’s monthly Cattle on Feed report of activity in the nation’s cattle feedyards, released Oct. 19. 

“More cattle were placed on feed during September than industry insiders expected,” AFBF Livestock Economist Jim Sartwelle said. “That is the only piece of bearish news in this latest report. We expect fed cattle prices to remain in the low- to mid-$90s per hundredweight through the rest of the year.”

Sartwelle said cattle-on-feed inventories are down in nearly all the key states from Oct. 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. 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. “Given how tight feeder cattle supplies have been since late summer, and with fall weaning fast approaching, I have to wonder if we may see a larger number of lighter-weight feeders going into the feedyards in the next 30 days,” Sartwelle observed.

Further, “as reports come out of Oklahoma indicating less wheat pasture will be made available for grazing this winter, we will watch the 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,” Sartwelle said.

“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 $3.50 premium to the June 2008 contract,” Sartwelle said. “I do not see any news in this report that has not likely been built into the recent $90 to $92 fed cattle trade.”

Financial pressures in the cattle feeding sector, however, trouble Sartwelle. “Calf and feeder cattle prices will follow the strong fed cattle market only as long as demand for them remains high,” he said. “We do not expect the profit crunch cattle feeders have endured recently to relax anytime soon. Continued red ink in the feeding sector will eventually spill over into the feeder cattle and calf markets. We continue to monitor this sector closely.”

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Contacts: Tracy Taylor Grondine
(202) 406-3642
tracyg@fb.org
Anne Keller
(202) 406-3659
annek@fb.org