DENVER, Colo. – American producers are riding into the sunset after two years of record cattle and beef prices.
“The good news is past,” said Randy Blach, executive vice-president of Cattlefax, a U.S.-based analyst firm.
Price levels remain strong because of the improved beef demand that was achieved several years ago, but Blach said maintaining the industry through the next cycle will depend on the United States regaining export markets that it lost in 2003 following the discovery of BSE.
“We will be very disappointed in where these prices will drop to by the end of this decade or early in the next decade if we fail to recapture that export market share,” he told the annual Cattlefax market outlet presentation at the National Cattlemen’s Beef Association meeting in Denver on Feb. 1.
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He said high prices are probably waning but drought in southwestern states could force a higher than anticipated cow slaughter, which would affect the future calf supply.
The drought is worst in the states where about a third of nation’s cows reside.
Cattle markets revolve in a cycle of expansion during good prices and liquidation during lower prices.
Prices in this next cycle are expected to stay above previous cycle lows and remain in a new and higher trading range, assuming domestic demand remains solid and the U.S. returns to a strong export position.
The industry has also changed as it moves into a new cycle. Structural change has arrived with more consolidation and more alliances where buyers have higher specifications above the average commodity type of cattle.
Good prices and improved demand returned confidence to the industry. Expansion is the result of that good fortune.
The most recent U.S. Department of Agriculture figures report that as of the end of January, cattle numbers totalled 97.1 million, up nearly two percent from 2005. Of that number, 33.25 million are beef cows, the largest herd since 2002.
Cattlefax analyst Mike Miller said it took eight years to rebuild from an inventory low; normally the cattle cycle turns much more quickly.
“We’re going to see this growth in the cow herd unfold over the next few years,” Miller said.
In addition, 38.7 million cows are raised in the U.S. and Canada, which is two percent more than the previous year. Canada’s cow herd is larger partly because of a loss of exports incurred by the BSE embargoes that have been in place since 2003. More females than average were retained because of a market collapse.
Fewer cows and heifers are being killed in the U.S. as rebuilding begins with females staying home for breeding and ultimately adding more calves to the market.
U.S. cow slaughter is at 40,000 per week or 4.86 million per year, a six percent decline from the year before.
As more heifer calves stay home, the feeder calf supply remains small at 28.2 million head, prompting more imports from Canada and Mexico. Canada is expected to export about 400,000 feeders and Mexico should ship 1.25 million.
Canada is expected to export 600,000 fattened steers. No cows or bulls will be in that mix.
“We do not anticipate bringing in cattle over the age of 30 months in the country during the calendar year of 2006,” Miller said.
The expansion means a growing beef supply. The U.S. could produce an extra billion pounds of beef this year, bringing the total to nearly 26 billion pounds. As well, cattle are being slaughtered at heavier weights, which adds to the supply.
Beef demand has held but not increased. American consumers spent $71 billion US on beef in 2005, which was part of the $161 billion they spent on all meat and poultry. That figure is expected to rise to $165 billion in 2006.
Feeding cattle has remained profitable for the last three years, thanks to an abundant supply of cheap feed grain and a warm winter, said analyst Kevin Good of Cattlefax.
In 2005, 81.8 million acres of corn were planted, producing 11 billion bushels. About 1.8 billion bu. have been diverted to ethanol production while a large percentage is being used to feed beef, pork and poultry.
However, as the beef supply expands, live prices are expected to start to fall.
“We think we have probably seen as high a prices as we are going to see,” Good said.
The average fed steer price in 2005 was $87.75 per hundredweight, while in 2006 it is expected to drop $2 to $3 as supply grows and demand remains flat.
The average price for a 750 lb. steer last year was $110 per cwt. and 550 lb. calves were $128. While the end of January saw calf prices at $132, Cattlefax expects the average price this year to drop $3 to $5 per cwt.
Bred cow prices in 2005 averaged $1,165, spurred on by high calf prices. As the calf price fall, they too will drop off in the next couple years.
