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July 26, 2004


U.S. cattle numbers continue to drop. Mid-year inventories were estimated by the USDA at 94.9 million, the lowest since July 1 data were started in 1973. However, expansion of the beef herd may be beginning as beef heifer retention is up, especially in Plains states recovering from years of drought. Prices of calves and feeder cattle are expected to be at record highs with strong live cattle futures and moderate grain and forage costs.

Very small U.S. cattle inventories continue to be one of the main features driving high cattle prices, and those supplies are going to be quite small over the coming year. Beef cow numbers have reached the lowest mid-year level. At 33.5 million, the cow inventory is down slightly from last year and is 7 percent lower than the last cycle peak in 1995. However, for the first time in many years, there are signs of expansion as the number of beef heifers being retained for replacement in herds is up 4 percent.

The expansion fever may be strongest for several of the Plains states where drought conditions are easing this year. Missouri leads the way with an 8 percent increase in beef cow numbers, while Nebraska's herd is up 5 percent, Kansas is up 4 percent, and Oklahoma is up 3 percent. Data in USDA's mid-year report is limited to only 11 individual states. The number of milk cows is down 1 percent.

The number of cattle in feedlots on July 1 was up 2 percent, which was lower than expected due to a small number of placements in June. With falling grain prices, there had been anticipation that placements would be on the rise last month. However, the reported placements were actually down 2 percent, likely as a result of the small number of available calves and a still uncertain feed price situation in June. Feed lot managers appeared more willing to purchase young animals with placements of calves weighing under 600 pounds up 24 percent, but stayed away from older animals with placement of calves weighing the over 600 pound placements down 8 percent.

Beef supplies have been down 10 percent so far this year. Not only are the number of steers and heifers down sharply, but producers have been slow to cull cows, resulting in a 14 percent lower cow slaughter. Marketing weights have been 0.3 percent lower than last year as well. In the coming 12 months, beef supplies are expected to be down by about 1 percent. Available domestic steer and heifer numbers are expected to be down 0.5 percent with cow slaughter down 3 percent. Weights, on the other hand, are expected to rise with extremely high finished cattle prices and moderate feed prices.

Prices for finished steers are expected to strengthen this fall and average in the very high $80 to the low $90s. Seasonal highs could be reached in late winter/early spring and approach the low to mid-$90s. Prices for the second quarter of 2005 are expected to be in the mid-to- higher $80s. Cow-calf producers will reap the highest returns of all this fall as high live cattle futures prices are complemented by a tiny calf crop (nearly one a percent smaller than last year's crop) and by the potential retention of additional heifers. In the fall of 2003, 500 to 550 pound steer calves at Oklahoma City averaged $1.11 per pound. This fall those prices are expected to establish new records of $1.25 to $1.40 per pound.

The biggest threat to continued strong prices is the possibility that imports of live animals from Canada will be allowed before restrictions on U.S. beef exports are lifted. No one knows how this will evolve, but it appears that these events may come at the same time. It is likely in the best interest of both Canada and the U.S. to negotiate BSE testing standards jointly with the Japanese. Getting the major players on the same page is the best hope for restoring international beef trade. While these negotiations are ongoing, no short-term breakthrough is expected.

Over the last seven months, beef producers have witnessed one of the widest swings ever in the outlook for their industry. From the emotional depths of the BSE announcement on December 23, 2003 to the current bright outlook, they could hardly have written a better turnaround.

Issued by Chris Hurt
Extension Economist
Purdue University


Department of Agricultural and Consumer Economics    College of Agricultural, Consumer and Environmental Sciences
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