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by Luke Schwieterman, President of Schwieterman, Inc. The Seven State Cattle on Feed report for February 2002 indicated three percent fewer on feed compared to last year. Placement numbers were also down three percent and marketing's were up two percent. Analysts and the market place anticipated these numbers. In our estimation, inventories are beginning to return back to normal after more than two years of drought-inflated on feed numbers. Lightweight placements are declining indicating that feeder cattle producers have pasture to grow cattle. Some of the decline in placements could be attributable to declining feeder prices as feeder cattle producers may be holding off for better prices. We are bullish cattle price but there are influences outside the marketplace that seems to be changing the perspective of what price should be. Specifically, the pending Farm Bill including a passage that prohibits cattle ownership by packers is not viewed as necessarily positive even though theoretically it should. The cattle industry is going through a lot of turmoil and justifiably so given losses of $100 to $150 per head over the last few months, the lowest farmer share of retail in history (40 percent) and near record retail prices. How producers, packers and retailers react to the current issues remain to be seen. We think some producers will give up the battle. Others will hang tough believing that hard times will pass and the cattle cycle will turn up providing profit opportunities. The USDA projects that average cash cattle prices in the first quarter will be between $67 and $69. For the second quarter the range is estimated at $72 to $76. We tend to think the USDA may have their projections a little low. Beef and veal imports are up over last year 4.7 percent for the month of November (most recent data). Beef and veal exports are down only 2.9 percent. You would think, given the events of September 11 that US exports would be down more than a mere 2.9 percent. You would also tend to think that domestic demand would be suffering as well, but we imported 4.7 percent more beef! Cattle imports are up nearly 14 percent for the year due to the exchange rate, the US has the corn and we need the beef. The US still consumes more than it produces. Anyone who tells you that producers need to cut back or that supply is too large doesn't know the facts. Feeder cattle producers have resisted the temptation to increase cowherds and their reward seems to be increased competitive imports from Canada and Mexico. Despite the bad news, we believe this spring will bring higher prices. Cattle inventories are declining, retail sales appear to be robust, and exports continue at a rapid pace. Thus far the US has escaped disease threats, which makes the product desirable in the export market. Consumer confidence also appears to be improving. The holidays seemed to bring Americans out of their cocoons somewhat and back into the retail marketplace. We suggest that spring will bring new optimism in the US economy. We fear however, that feeder cattle producers may experience some price pressure over the next six months. Finished cattle losses have to be made up and about the only way for that to happen is for fat cattle prices to go up and feeder cattle to stay sideways to lower because we don't see any other input costs going down. We would suggest that all feeder cattle producers buy put options on any feeder cattle owned as price insurance. We also suggest the same for finish cattle producers. Our greatest fear in this market is discovering that the US has foot and mouth or BSE. Either one would result in a devastating blow. Use the put options as price insurance against an unexpected disaster. © Schwieterman, Inc. is a Registered Commodity Trading Advisor in Garden City, Kansas. The information herein is based on data obtained from recognized statistical sources believed to be reliable. However, such information has not been verified by us, and we do not make any representations as to the accuracy or completeness. Past results are not necessarily indicative of future results. The risk of loss in trading commodity futures contracts can be substantial. You should therefore consider whether such trading is suitable for you in light of your financial condition. You may visit their web site at www.upthelimit.com . |
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