040133 Report Says Beef Production Still Down

Washington - Cattlemen increased the number of placements during December, as analysts expected prior to the release of last week’s U.S. Department of Agriculture’s Cattle on Feed Report.

“The report was pretty much as expected, pre-release estimates were calling for big placement numbers and that’s what we got,” said Gregg Doud, chief economist for the National Cattlemen’s Beef Association.

According to the USDA, cattlemen placed 1,748,000 head of cattle in December, up 10% from the same period in 2002. During the month they sent 1,740,000 head to market, down 3% from the previous year.

“Most of the analysts were at 108 to 109 for placements before the report, so the number was a little bit over but not much,” Doud said. “The average estimate for placements was 104.6%.”

Placements of cattle weighing less than 600 pounds were 503,000 head; from 600 to 699 pounds, 529,000 head; 700 to 799 pounds, 448,000 head and 800 pounds and more, 268,000 head.

As of Jan. 1, the USDA estimated 11,330,000 head of cattle on feed, up 6% from the 2003 estimate, but 3% below the Jan. 1, 2002 number. “Our beef production is still down. During the first two weeks of January, federally inspected beef production averaged 15% below a year ago,” the NCBA economist said. “So that is a key number and it tells us why the placement number is increasing.” Last week, Doud said, cattle were traded at $80 and a few at $81.

“That is quite strong, considering the loss of our export markets,” he said. “If we had our export markets, the price of cattle would be $13 to $15 higher than where it is now.” Doud expects this report to put some pressure on the deferred cattle contracts, since the cattle placed in December will be marketed in the summer.

“We were already beginning to see that well before Dec. 23,” he said. “There is a distinct break between springtime cattle prices and the summertime cattle prices. This report will widen that discounting into the summer even more.”

The market is efficient in reacting to shocks as well as the fundamentals of supply and demand, Doud continued.

“On Dec. 24, it took only a matter of minutes for the option market to price in the new information,” he said.

“It is also important to realize that in volatile times like we’re in today, risk management for all phases of this industry are critically important,” Dodd said.

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