January 29, 2001
CATTLE INDUSTRY CELEBRATES WHILE
LOOKING OVER THEIR SHOULDER
The cattle industry may spend much
of the year celebrating the highest prices since 1990, led by
shrinking supplies and favorable demand. However, two issues lurking
in the shadows could derail the party. These are the slowdown
in the general economy and media attention being given to mad
cow disease in Europe and questions of whether it could happen
Total cattle inventory on January
1 was down 1 percent from last year and down 6 percent from 1996
when the liquidation phase of the current cycle began. Beef cow
numbers dropped 0.5 percent, while milk cow numbers were unchanged.
There are indications that beef producers are now ready to shift
into expansion. The number of beef heifers being retained to return
to the cow herd was up 1.5 percent and milk replacement heifers
were up 1.2 percent.
The number of steers and heifers
weighing over 500 pounds was down 1 percent, which means a smaller
number of cattle coming out of feedlots in the first-half of the
year. The number of calves weighing less than 500 pounds, which
will supply last-half slaughter, was down 3.5 percent. Added to
a smaller steer and heifer slaughter will be a 3 percent reduction
in cow and bull slaughter.
Beef cow numbers continued to decline
in the eastern corn belt. Indiana and Michigan saw numbers drop
by 11 percent, Illinois by 6 percent, and Ohio by 2 percent. Only
Wisconsin had an increase (5 percent). An increase in milk cow
numbers occurred in Indiana (9 percent) and in Ohio (3 percent).
Both of these states had new investments in large scale milk production
in 2000. Milk cow numbers in Michigan were unchanged, while those
in Illinois and Wisconsin were down 2 percent.
Commercial beef production is expected
to drop by 3.5 percent in 2001, to 25.8 billion pounds. First-half
supplies are expected to be down 3 percent, with second-half supplies
down 4 percent. Market weights will be critical to final supplies.
Last year cheap feed and rising cattle prices encouraged weights
to move up by 1.4 percent. However, since early December, weights
have been down about 0.5 percent. This is thought to be a result
of cold weather in December and high cattle prices in January,
which have encouraged feedlot managers to move cattle to market
somewhat earlier. Lighter weights contributed to higher than expected
prices in December and January.
For 2000, Nebraska finished steer
prices averaged $69.65, an increase of 6 percent with supplies
up 1.5 percent. An increase in price when supplies are also larger
is generally considered to reflect increasing demand. The same
was true in 1999, when prices were up 7 percent with supplies
up 3 percent. If demand continues to improve this year, it is
hard to imagine how high cattle prices could be.
Prices of finished steers are expected
to average in the very high $70s for the first quarter of 2001.
Early spring highs could reach the lower $80s. Prices are expected
to drop from early April, reaching the lower $70 by the end of
summer. Prices are expected to recover in the fall and average
in the $75 to $79 range for the last quarter of the year.
Steer calves at Oklahoma City weighing
500 to 550 pounds averaged $1.02 per pound in 2000 and are expected
to be about $.04 a pound higher this year. Feeder steers weighing
750 to 800 pounds averaged $.86 per pound last year and should
be $.03 to $.04 higher this year. Prices in the eastern corn belt
tend to be $.03 to $.05 lower.
Cow/calf enterprises have been profitable
since 1997 and should be again this year. Expansion can be expected
and retained heifers will draw down slaughter supplies and keep
One threat to high priced cattle is the slowing general economy.
My current estimates suggest that each 1 percent growth in the
economy relates to $1 higher cattle prices. If the economy were
to slow down to a zero-to-one percent growth, this could reduce
cattle prices by $2 to $4. The counter argument is that the economy
already slowed in December and January, yet cattle prices were
higher. The impact on consumer demand likely lags the slowing
economy somewhat, especially as higher energy costs are just being
realized by many households.
The other major concern is media
attention being given to mad cow disease in Europe and whether
it can happen in the U.S. Even without an outbreak, media attention
could dilute the heightened demand for beef. The industry is justified
in working closely with the FDA and USDA in monitoring and regulation.