March 10, 2005

 

For the coming years the cattle prices should remain strong in US

 

 

Harlan Hughes a livestock economist said the cattle producers will continue to see good market demand for another two or three years in US.

 

It was noted by Hughes a professor  emeritus from North Dakota State University, that the cattle number cycle had already reached the bottom and as indicated by January's USDA, there is now a start in the increase of herd numbers.

 

Due to drought in western areas of US, Hughes noted that the current cycle might have 13-year length as compared to the original cattle cycle of 10 years which is normal. However this can come back to normal based on a good rainfall.

 

According to Hughes, the cycle is driven by the biology of the beef cow. ¡°Once the cow-calf operator gets the price signal to expand it takes three years to expand and then by that time the price signal is to contract. And it's that biological lag from the time they decide to expand till they do expand that produces the cycle.¡±

 

This isn't the time to get into the cattle business, however, Hughes stressed. ¡°Bred animal prices right now are quite high and so anybody who gets into the business now is probably going to be a high cost producer,¡± he said.

 

Hughes believes that domestic cattle prices should be good for the next couple of years, because it's going to take a couple of years to build the herd numbers back up.

 

¡°The Canadian situation might amplify the cycle a bit, making the highs higher and the lows lower,¡± he explained. ¡°There just isn't that many cattle in Canada to make a big difference. There is a lot of perception that Canada has a large number of cattle, but actually, the state of Texas has more cattle than the entire country of Canada.¡±

 

As per Hughes, feedlot industry as well as the packing is under immense pressure due to lack of cattle to keep these two sectors perform at full potential. Due to this a million cattle is to be imported from Mexico while the number of cattle to be imported from Canada is yet to be decided. However there is a need for feeder cattle from both the countries to keep the feeder.

 

He added that he read recently that some feedlots were running at only 60 percent capacity and that they just can¡¯t keep a feedlot running at that capacity level for it will go out of business.

 

The continued closure of the Japanese market to US beef probably had some influence on the response to the Canadian border opening, according to Hughes.

 

¡°It would have been nice if the two borders would have opened together,¡± he said. ¡°I expect if that would have happened we wouldn't have seen much impact either way.¡±

 

According to Hughes' professional judgment, whether Canadian cattle come across or not, there isn't enough of them to make an economic impact. Cattle numbers are at the cycle low, and when cattle numbers are low, beef prices are high, so he is predicting high prices for the next two calf crops.

 

¡°It's clear that the US cattle industry is now expanding the herd,¡± he said. ¡°Just look at the prices of heifers in the sale barn will confirm that. So we will be expanding for the next several years n typically about six years. As we expand we'll slowly drive the domestic price down.

 

¡°The unique thing about the cattle cycle we are currently in, is with demand as strong as it is, and I assume beef demand will stay strong, we could see prices heading towards a new plateau,¡± he continued. ¡°This is the first time in almost 30 years that we have seen an increase in demand. So this should be a very exciting time for cattlemen.

 

¡°And that should be the best possible news the cattle industry could get,¡± Hughes added, ¡°so he doesn¡¯t know why they are off worrying about things that won't have as much impact¡±.

 

But, according to Hughes, it's just another issue that the cattle industry seems to take on about every 10 years.

 

"From 1975 to '85 the issue was on the futures market and how that was going to destroy the beef industry," he said. "Then, from 1986 to '96 the fear was from the dairy herd buyout program, and since 1997 till now, it's the imports that are going to kill the industry. I think the cattle industry takes on a new issue about every 10 years, and this is just one of those issues."

 

Hughes feels the cattle industry has more to worry about than prices.

 

"Our biggest danger is the cattle industry is going to destroy themselves from within," he said. "All of this dialogue within the beef industry on such things as the border opening, has got to start raising questions in the minds of the consumer. Especially with some in the industry saying Canadian beef is unsafe to eat. If we don't end up losing consumers out of this whole deal, I will be surprised. That's the danger; we are playing with big, big issues.

 

"United we stand, divided we fall, and we sure are divided. Our enemy is not ourselves; the enemy is the other proteins out there waiting to move in. Pork has already moved in," he said.