January 31, 2005
CATTLE PRODUCERS BEGIN EXPANSION
Let the expansion begin! Those seem to
be the words the cattle industry received as numbers are on
the rise. The stimulus has been record cattle prices led by
strong demand, even in the face of distorted trade due to
Finished cattle prices set a record in 2004, with Nebraska
steers registering an average of $84.75. More importantly
for brood cow operations, prices of calves were much above
their previous records. As an example, Oklahoma City 500 to
550 pounds steer calves averaged $122 per hundredweight in
2005, compared to the previous record of $104 in 2001. Heifer
calves weighing 450 to 500 pounds averaged $114 in 2005, with
a previous record of $98 per hundredweight. Secondary factors
contributing to the expansion have been the abating drought
for Plains states and cheap feed, with abundant forages, and
low priced corn, sorghum, and soybean meal.
The total inventory of cattle stood at 95.8 million head
on January 1, 2005, 1 percent larger than last year's inventory.
Beef cow numbers were up .6 percent and milk cow numbers were
up .2 percent. The expanding herd means that a new cattle
cycle is underway. The previous cycle was a very long one
at 14 years, spanning from 1990 through 2004. The seven cattle
cycles since 1928 have averaged 11 years.
The expansion of beef cow numbers is especially noteworthy
in the central and southern Plains, which added 139,000 cows,
and in the Corn Belt, which added 136,000 cows in the last
year. The eastern Corn Belt in particular had a large increase,
amounting to a 6 percent. Expansion was led by 32,000 more
cows in Ohio, 28,000 more in Illinois, and smaller increases
in both Indiana and Michigan. Further increases in the breeding
herd can be expected throughout the year. The number of heifers
being retained for addition to the breeding herd is up 4 percent
for the beef herd and up 3 percent for the dairy herd. Since
the expansion is just getting underway, the increase in the
size of the 2005 calf crop is expected to rise a modest .7
percent. This rate of increase will likely rise in 2006 and
Beef supplies will be much larger in 2005. The number of
cattle raised in the U.S. is expected to rise by about 1 percent.
Live imports from Canada, scheduled to begin in March, are
expected to add an additional 4 percent. Finally, weights
are expected to move higher by more than 1 percent. Total
beef supplies will increase by 6 to 7 percent. Will this large
supply surge greatly depress prices in 2005? The answer is
closely tied to the still evolving issue of, if and when,
beef exports can be nestered to Japan and most other countries
that have not been buying U.S. beef since the December 23,
2003 announcement of a BSE positive cow. The anticipation
continues that these markets will be opened some time in the
late spring or early summer. If so, there will be a home for
most, if not all, of the larger beef supplies. In 2003, the
U.S. exported about 10 percent of domestic beef production.
Initially, the U.S. will not recover that entire market share.
The U.S. may export about 6 percent of domestic production
in the first full year of lifting the ban. If so, prices for
2005 may only be $2 to $3 lower than the $84.75 record finished
steer price of 2004.
However, the timing of the opening of live cattle imports
from Canada and the opening of U.S.beef exports may cause
more distortion in cattle prices than most cattle producers
would like. In the March to June period, prices could be particularly
vulnerable to opening of live cattle imports from Canada,
especially in the absence of a clear date for the opening
of exports to much of the world. Finished cattle prices are
expected to average in the mid-to-higher $80s in the first
quarter, but drop to the low $80s in the second quarter. If
exports are restored by mid-year, prices are expected to be
in the high $70 or low $80s in the summer quarter, with the
last quarter prices rising to the low-to-mid $80s.
Moderate priced feed and forages, and a reasonably strong
finished cattle market, will help maintain profitable prices
on calves. However, those $122 steer calves and $114 heifer
calves in 2004 may be $8 to $12 lower in 2005.
Issued by Chris Hurt