December 7, 2006

 

Demand, ethanol, inventory shapes 2007 US cattle prices

 

 

A drop in domestic demand for beef whittled the US cowherd from approximately 132 million head in 1975 to less than 100 million at the beginning of this year, according to Kansas State University economist Jim Mintert.

 

With 1980 as a benchmark, demand dipped to about 61 percent last year.

 

Mintert cited a boost in the meat industry received from a low-carb diet fad as a possible reason for the decline. Another factor, according to him has been larger chicken supplies in the domestic market owing to the Avian flu scare, which reduced chicken exports.

 

The only way to turn the situation around, would be to bring more variety in beef and Mintert intends to do so besides focussing on higher exports. The US market holds a great potential in this regard, he feels.

 

The current situation in South Korea was however, restricting exports, he pointed out while admitting making a little headway in Japan.

 

From a supply standpoint, Mintert said that the mid-year inventory was above that of 2005 and near record returns in the cow-calf sector for 2004 and 2005 provided a signal for cattlemen to expand their herds.

 

Poor pasture conditions, however, were likely holding back that expansion. Beef cow slaughter was up 17 percent compared with 2005 but producers were still holding back more heifers.

 

For fed cattle, Mintert said carcass weights have been rising but higher grain prices could moderate that trend. He expects slaughter prices in 2007, on average, to remain fairly steady with 2006.

 

As for feeder cattle, seven to eight-weight Kansas steers brought about US$1.20 per pound in August which has now dropped to about US$1 on account of higher grain prices. The story could be similar for 500 to 600-pound cattle. Mintert sees them dropping from an average of about US$1.25 this year to around US$1.10 next year.

 

Also, higher corn prices would lead to higher price in the cattle market, he said.

 

To overcome the current crisis, Mintert urged cattlemen to consider Livestock Risk Protection policy. The latter provides protection against a broad decline in prices, as keyed by the Chicago Mercantile Exchange.