February 3, 2002
BEEF PRICES WILL MEAN HERD EXPANSION
numbers continue to drop, but there are signs that herd expansion may begin later
this year. The beef cow herd inventory was reported as smaller in the January
2003 USDA Cattle report. Now at 32.9 million head, the beef cow herd has dropped
7 percent since 1996. The current beef cow cycle is now 14 years old, with the
previous low on beef cow numbers occurring in 1989. This very long cycle will
likely come to a close later this year as producers have retained about 1 percent
more heifers for replacements, with the number of replacements that will calve
in 2003 up 3 percent.
The number of beef cows on
January 1, 2003 was down a modest 0.5 percent. In the Eastern Corn Belt, numbers
were down 1 percent led by declines in Illinois (down 19,000 cows) and Ohio (down
20,000 cows). Indiana, Wisconsin, and Michigan each reported some increase in
beef cow numbers. Around the country, small increases in cow numbers occurred
in the Western Corn Belt, the Southern Plains, and the Southeast, all other regions
had decreases. The Northern and Central Plains as well as the western U.S. all
had decreases due to the pervasive drought that limited pastures and forage supplies
in 2002. Current drought indicators show no signs of improvement in most of those
For the dairy herd, cow numbers were up by 0.4 percent. Unfortunately,
there is still no sign that producers are reducing cow numbers in response to
the dismal milk prices in 2002, which were the lowest since 1980. In addition
to a slightly higher number of cows in production, heifers being retained for
breeding stock were up 1 percent. The continuation of higher milk cow numbers
is a sign of even larger milk supplies this year.
declining beef cow numbers and increasing milk cow numbers, the total number of
cows is only down a modest 0.3 percent. The 2002 calf crop was down only 0.2 percent.
Cattle on-feed numbers were down 8 percent as of
the beginning of the year. While placements in both November and December were
moving back upward, the number of market ready cattle coming out of feedlots will
be small in coming months. Carcass weights in 2002 were up 2.8 percent, and accounted
for most of the 3.8 percent increase in total beef production for the year.
far this year, beef supplies have been down nearly 3 percent, providing the primary
reason for finished cattle price strength. First-half supplies will be drawn from
the number of steers weighing over 500 pounds (down 1.2 percent) and heifers weighing
over 500 pounds not headed back for replacements (down 1.7 percent). Second-half
supplies will be drawn from the number of calves weighing under 500 pounds on
January 1 (down 1.3 percent). Beef supplies for the rest of the year will also
be influenced by marketing weights, by weather and drought conditions, and the
resulting rate of cow slaughter. Cold weather limited gains this winter and resulted
in some delays of cattle coming out of feedlots, contributing to the 3 percent
drop in January beef production. In the last-half of the winter, there will be
some "catching-up" of marketings which will contribute to larger supplies.
Beef production may be down about 1 percent in the first quarter and down 2 percent
in the second quarter. Heifer retention could begin to accelerate in the second-half
of the year, and combined with declining cow slaughter may also reduce total beef
supplies by as much as 3 percent to 4 percent.
cattle prices are expected to dim somewhat in the next few weeks as slaughter
supplies increase from the cold-weather delays. However, prices could still reach
new highs in the very low $80s in late March and early April. The decline in prices
in the summer is not expected to be as severe as normal, with prices dropping
back into the lower $70s by the end of the summer. Prices in the fall are expected
to move into the mid-to-higher $70s.
in the fall of 2003 are expected to recover substantially compared to last fall.
As an example, Oklahoma City 500-550 pound steers averaged $88.38 last fall. If
finished cattle prices remain strong, and if feed prices moderate with "normal"
weather this summer, calf prices could return to the very high $90 to low $100's
The cattle market is trading
at lofty levels, which makes it even more vulnerable to uncertainties, including
a potential armed conflict and a still shaky recovery in the general economy.
In addition, continued drought in the Mountain States, as well as the Central
and Northern Plains, could keep cow slaughter much larger than anticipated and
reduce the number of heifers retained for replacements.