February 21, 2007

Strong corn a key ingredient in US cattle market outlook for 2007

According to the latest Cattle-Fax outlook on the US cattle and beef market, the year 2007 would be characterised by significantly higher corn prices, slowing herd expansion and reducing cattle prices (fed, feeder and calf).

Together with limited growth in beef demand, this is expected to narrow profit margins for cow/calf operators and feedlots, but improve prospects for processors. The outlook for exports is critically dependent on whether current market access barriers are eased.

Escalating corn prices will be one of the main determinants behind US cattle and beef supply trends over the next few years. Although corn acreage is expected to increase by 10 percent this year, this would not offset the high demand from the ethanol sector.

As a result, corn prices are expected to trade in a US$3-$4/bushell band between 2007 and 2010. Cattle-Fax expects this will be reflected in reduced feeder cattle placements, lower calf and feeder cattle prices (if fed cattle prices fail to move higher), fewer live feeder cattle imports from Canada and Mexico and lower carcase weights.

Despite slightly lower carcase weights, beef production levels in 2007 are expected to rise 1 percent on 2006 to 11.9 million tonnes.

Modest increases are projected in cow slaughter over the next few years. This year, most of the increase will be dairy cows, while beef cows will be up slightly. US cow prices are expected to decline by around 6 percent as a result of lower calf prices.

Following a 12-percent decline in US beef imports in 2006, volumes in 2007 are anticipated to rise by 3 percent. This upward trend should continue over the medium term.

By 2010, Cattle-Fax expects US beef exports to recover to pre-BSE levels, with steep inclines in shipments forecast in 2007 and 2008, assuming current market access barriers are eased.