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SH, What Happens When the Supply Goes Up?

Econ101

Well-known member
Crowded feedlots create pocketbook pain



BY ART HOVEY / Lincoln Journal Star

May 23, 2006

Lincoln, NE

US



For the first five months of 2006, Nebraska’s cattle-on-feed numbers have been running at record pace.



Unfortunately, profit potential has been running in the opposite direction for beef production, the biggest annual generator of revenue in the state’s agricultural economy. As feedlots have gotten more crowded, the red ink has gotten deep.



“We’re probably seeing the reddest feeding returns right here that we’ve seen in at least a couple of years,” Jeff Stolle, based at the Nebraska Cattlemen office in Lincoln, said Monday.



Monthly reports from the Lincoln office of the USDA Agricultural Statistics Service tell part of the story.



The May total of 2.32 million head beats anything on the books for the month all the way back to the start of similar reports in 1994. The same applies to April and January.



The February 2006 count of 2.49 million head was the highest in Nebraska for any month since 1994. March was second.



Cattle feeders prefer the sorts of record rises that have dollar signs in front of them. But a long list of contributing factors, including the fading popularity of diets emphasizing meat consumption, has pushed the meat supply up and the demand down.



“These guys are losing $150 a head right now,” said John Harrington, who analyzes livestock trends for the Data Transmission Network from Hastings. “We’ve had kind of a flood of protein.”



Harrington, Stolle and Dillon Feuz, a livestock-marketing specialist with the University of Nebraska in Scottsbluff, tossed out lots of reasons Monday for pocketbook pain.



High on that list, all three of them said, is drought that has wiped out possibilities for wheat grazing all the way from Texas into southern Kansas. That has pushed calves with nowhere else to go into feedlots as far north as Nebraska at lighter weights.

At the same time, it has put them on a ration that results in faster weight gain.



“Some of those cattle that have been forced into lots in the south are becoming market ready as much as 60-90 days faster than they would under normal weather patterns,” Stolle said.



“Usually, those cattle are August through October as far as being ready for slaughter.”



More signs of trouble, beyond diet fads, are not hard to find.



Worries about bird flu have slowed poultry exports and forced more chicken onto domestic markets and into competition with red meat. Relatively cheap supplies of corn may have led some cattle feeders to put too many cattle at the supply end of the delivery pipeline.



The retreat of Japan, Korea and other major beef importers, because of worries about mad cow disease, has hurt. Meanwhile, easing of similar worries about mad-cow disease in the United States led to a decision to re-open the Canadian border to younger cattle.



Nebraska is closest to that source of feedlot supply.



All things considered, said Harrington, “we’re forcing more calves and feeders, in general, into feedlots much faster than they usually are.”





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