February 1, 2005

 

 

US cattle prices could dip to US$80 in second quarter, say expert

 

Trade distorted by bovine spongiform encephalopathy (BSE or mad cow disease) seems to be no match for strong demand and record cattle prices in terms of creating an outlook for cattle industry expansion.

 

"Beef supplies will be much larger in 2005," says Chris Hurt, Purdue University Extension marketing specialist, in his latest cattle industry outlook.

 

But, Hurt cautioned that US 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," he said.

 

"The expanding herd means that a new cattle cycle is underway," Hurt adds. "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 number of cattle raised in the US is expected to rise by about 1%. Live imports from Canada, scheduled to begin in March, are expected to add an additional 4%, with cattle weighing heavier by 1%. Total beef supplies are expected to increase by 6-7%.

 

Whether or not large supplies will depress 2005 prices depends on if and when, beef exports can be restored to Japan and most other countries that have not been buying US beef since the December 23, 2003 announcement of a BSE-affected cow.

 

It is anticipated that these markets will open some time in spring or early summer. "If so, there will be a home for most, if not all, of the larger beef supplies," Hurt says.

 

"The United States may export about 6% of domestic production in the first full year of lifting the ban," he says. That's down from about 10% of production exported before the ban was put in place.

 

"If so, prices for 2005 may only be $2 or $3 lower than the $84.75 record finished steer price of 2004," added Hurt.

 

Hurt had a few additional remarks about the cattle outlook:

Secondary factors contributing to the expansion of the cattle herd have been the abating drought in 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 Jan. 1, 2005, 1% larger than last year's inventory. Beef cow numbers were up 0.6% and milk cow numbers were up 0.2%.

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 6%.

Expansion was led by 32,000 more cows in Ohio, 28,000 more in Illinois, and smaller increases in both Indiana and Michigan.

The number of heifers being retained for addition to the breeding herd is up 4% for the beef herd and up 3% 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 0.7%. This rate of increase will likely rise in 2006 and 2007.

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 $70s 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 US$122 steer calves andUS$114 heifer calves in 2004 may be US$8 to US$12 lower in 2005.