Released: February 05, 2003

January Cattle Prices Up 15 Percent vs. 2002
      Gains Linked To Tighter Supply, Stronger Demand

MANHATTAN, Kan. – Slaughter cattle prices in the key Kansas market were 8 percent higher in late December than they were a year earlier and prices jumped 15 percent in January, fueled by tighter cattle supplies, a Kansas State University agricultural economist said.

The annual average price for cattle coming out of the state’s feedyards in 2002 was $67.34 per hundredweight [cwt], down 7 percent from 2001’s, but prices the last week of December averaged $73, up 8 percent from the start of the year, said James Mintert, livestock marketing specialist with K-State Research and Extension. Prices climbed even further in early 2003, averaging $78.91 in January with some daily average prices reaching above $80.

"The sharp price rise in January was partly the result of declining fed cattle supplies, but it could also mean that consumer demand for beef is improving," Mintert said. "Cattle slaughter fell below a year ago in December and averaged about 1 percent below last year during January."

Dressed cattle weights were near a year ago, which meant beef production in general dropped about 1 percent below 2002 production in January. The small decline in beef production was not large enough to fully explain the big rise in prices, suggesting that a rebound in consumer demand might be partly responsible for the price rise. Mintert noted that wholesale beef prices, as measured by the U.S. Department of Agriculture’s light Choice carcass cutout estimate, averaged 16 percent higher in January 2003 than in January 2002.

Slaughter cattle supplies through the rest of the winter will remain tight, the economist said, which should keep prices in the upper $70s the rest of the winter. Any severe winter weather in the Plains states would likely push cash prices up over $80, according to Mintert.

The January USDA Cattle on Feed Report indicated that slaughter cattle supplies will remain tight through the winter, he said. Cattle feeders placed 5.68 million head [net] on feed in October-December 2002 – 4.4 percent less than a year earlier and 9.8 percent less than the five-year average for that period.

Similarly, the report showed the Jan. 1 U.S. cattle-on-feed inventory was 9.2 smaller than last year and 7.1 percent smaller than the five-year average.

Mintert expects cattle prices to weaken seasonally by late spring and summer, "but the decline is not likely to be as severe as in 2002." The price drop then was magnified by unexpectedly large supplies of competing meats.

"That scenario is not expected to repeat unless the exotic Newcastle disease problem spreads into major U.S. poultry production areas in Arkansas and parts of the East Coast," he said. The disease has hit poultry flocks in California and has been detected in Nevada. That prompted Mexico to ban poultry imports from those two states. Canada has also placed a ban on poultry imports from California, while the European Union has banned all poultry imports from the entire United States.

In a move not directly related to the U.S. poultry situation, Russia announced in late January that it was temporarily banning meat imports from all countries. Although Russia said the ban was temporary and likely to last only a few weeks, it further disrupts world meat trade. If the ban remains in place for an extended period of time, it could boost meat supplies in the United States, which would hold down U.S. beef, pork, and poultry prices.

The winter price outlook should mean good news for cattle feeders, said Extension livestock production economist Rodney Jones.

"Break-even prices for current close-outs are averaging around $72 per cwt, and will likely increase to $74 by late April or early May," Jones said. "With current projections suggesting that fed cattle prices will remain in the upper $70s for the next few months, that should result in some much-needed positive returns."

Recent mild winters have been favorable for cattle feeding in Kansas, but that weather-related setbacks are always possible, he said.

"There’s also a very real chance that feed ingredient prices could rally from their recent lows if dry weather persists into spring. There’s always a chance that harsh weather or a sharp increase in feed ingredient prices could impact cattle feeding returns beyond our current expectations," Jones said.

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K-State Research and Extension is a short name for the Kansas State University Agricultural Experiment Station and Cooperative Extension Service, a program designed to generate and distribute useful knowledge for the well-being of Kansans. Supported by county, state, federal and private funds, the program has county Extension offices, experiment fields, area Extension offices and regional research centers statewide. Its headquarters is on the K-State campus, Manhattan.

Story by:
Mary Lou Peter, Communications Specialist
mlpeter@oznet.ksu.edu
K-State Research& Extension News