Farm Facts for Fairfield County

for May 30, 2003 ; also seen on Fridays in the Lancaster Eagle Gazette

As of Memorial Day it appears the US cattle industry has dodged a bullet - US beef consumers didn't appear to flinch in response to the Canadian BSE scare. Obviously, as the tangled trail of evidence unfolds in the continuing Canadian investigation, the possibility of outcomes harmful to US cattle industry could be introduced, but the odds of this happening appear to be slim.  For those with cattle to sell during the next couple of months who are still wary of potentially demand busting events, June put option premiums fell sharply after Memorial Day and minimum prices in the lower $70's (futures) could be locked in. If a highly negative BSE related event occurs, the value of the option would increase greatly and partially offset a cattle seller's losses in the live cattle markets.

If demand remains un-phased by the event, US feedlots will benefit from the temporary ban on the movement of cattle and beef from Canada. The key question is how long will this ban last. Many market observers have noted that Canadian cattle imports account for about of 4% of all cattle slaughtered in the US each year and that Canadian beef imports are equivalent to about 4% of all US beef production. However, these figures are a bit misleading as they smooth out seasonal differences. The ban is likely to extend for June and maybe July and August.

Historically, June is a low month for Canadian live cattle imports. In June 2002, for example, Canadian slaughter cattle imports accounted for only 2.8% of US slaughter and Canadian feeder cattle imports accounted for only 0.6% of US feeder cattle sales. Canadian beef imports were about average during June of 2002 and June of 2001, however. Hence, the demand boost from the ban will be a little weaker than what most analysts who have used annual statistics have predicted.

In particular, there should be little impact on feeder cattle markets so long as the ban does not extend past July. Canadian imports of feeder cattle account for less than 1% of the market during June and July. If the ban extends into August and September, however, feeder cattle prices could experience a noticeable boost. In 2002, Canadian imports accounted for 2.4% and 3.7% of feeder cattle sales during these two months; the loss of this supply could mean a few more dollars in cow-calf producers' pockets.

Stepping away from the BSE incident, it remains clear that the base demand for beef remains strong. May beef production was 2% above beef production in May 2002. Prices in May of 2002 average $65 while prices this May averaged $78. You don't need to be an economist to figure out that a 2% increase in supply coupled with a 20% increase in live cattle prices means stronger demand.

Much of this surge is driven by the demand for choice beef, with the choice-select spread hitting the $18 mark during May - about $10 over its seasonal average. This is due to cattle marketing dynamics. The weights of slaughter steers are well below year ago levels and many feedlots were anxious to market cattle before the larger supplies of summer come along. This race to the slaughterhouse further exacerbates the difficulty of locating cattle that can grade choice. The need for cattle that can grade choice was evident in recent movements in the feeder cattle markets. In Kentucky 8 cwt. feeders were selling at a premium to 7 cwt feeders, which is a rare event and signals just how eager feedlots are to get cattle to market that can grade choice before the inevitable seasonal decline in the choice-select spread and before the large feedlot placements from March and April crowd late summer slaughter houses.

The biggest news from the latest Cattle on Feed report was that feedlots placed 427,000 more cattle (+27%) on feed during April 2003 than in April 2002; no analysts had predicted such a surge and it is among the largest year-over-year increases in placements in some time. However, as I mentioned in last month's column, April 2003 feeder cattle sales were 25% above April 2002 feeder cattle sales and foretold of the massive movement of cattle into this last stage of production. May 2003 feeder cattle sales figures are about 15% higher than May of 2002, suggesting that the flow of cattle into US feedlots will again run above year ago levels, though official figures will not be available until the June Cattle on Feed report. Needless to say, however, late summer beef production will increase both as the number of cattle coming to slaughter increases and as weights rise seasonally.

Barring BSE related news, prices should drop from the upper-$70's to the mid-$70's by the end of June and then gradually fall to the upper-$60's by September. If the Canadian ban persists beyond June, I would add $1.50 to these prices. Prices will then begin their seasonal climb in October and move toward the mid-$70's by December.

Reservations are not essential but encouraged by phoning any of the sponsoring OSU Extension offices: Licking County (740) 349-6900, Fairfield County (740) 653-5419, Perry County (740) 743-1602 or e-mailing Howard Siegrist at siegrist.1@osu.edu.

Lancaster Farmer's Market

The Lancaster Farmer's Market has been open on its traditional Wednesday evenings and Saturday mornings for a few weeks now, and the selection of produce, plants, and baked goods continues to grow each week. Be sure to stop by the market, held in the Job and Family Services parking lot on the corner of Wheeling Street and Memorial Drive between 6 and 8 p.m. on Wednesdays, and from 7:30 a.m. to noon on Saturdays. This week at the market you can expect to find fresh strawberries, broccoli, cabbage, tomato plants, and baked goods, along with other plants and the friendly faces and service from Fairfield County's farmers and gardeners. For more information on the Farmer's Market, or if you are interested in selling some of your produce, contact Virginal Daniels at 756-7927.

For a listing of upcoming programs, meetings and events, visit the AG CALENDAR

Previous Issues of Farm Facts

updated on May 28, 2003 by Stan Smith

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