November 17, 2003

US Beef Prices May Stay Record High Till 2004 1st Quarter

Steer prices a week ago averaged $1.04 per pound, while finished steer prices hit a record $115 per cwt during October in the United States. Analysts say this year may go down as the best ever, and cattle producers are selling just about anything on the hoof to take advantage of the high prices.

The market psychology is "let's rush them to market" says Ernie Davis, Texas Cooperative Extension livestock marketing economist.

"Our placements in feedlots are expected to be 10% higher at least from a year ago," adds Jim Robb, director of the Livestock Marketing Information Center in Denver. "Clearly, this is a very unique set of market circumstances."

Both Davis and Robb say prices will remain historically high into the first quarter of 2004, though they'll likely dip from the record levels seen in October.

The two say several key factors are fueling the current market: 

• All eyes are on Canada and when it will be allowed to resume trading of live cattle across its border. "That's at least four months down the line," Davis estimates. He says the earliest the market could open is in March. Attention is being paid to feedlots. The feedlots hold all of the cards, says Robb.
  
  "They don't need to market animals until the packers come to them," he said. "That will go on for three or four more weeks. I suspect by the time we get to December, we're trading lower fed cattle prices still at historically high levels, but they are getting into the 90s mostly as opposed to the $1 (per pound) range. That's still the highest prices we've ever posted barring this year or this quarter."
  
  
• The price of corn. USDA is projecting a record US corn crop this year. With prices hovering around $2 a bushel, many feedlots aren't too worried about the price of corn. However, a poor corn crop in 2004 could change the price of cattle. "If you have a short corn crop, most of the adjustment will be on the cattle side, which means cow-calf prices have to adjust accordingly," Robb said.
  
  
• Expect US' beef cow inventory to be tighter by January 1. Davis and Robb expect fewer cows will be slaughtered in 2004 because they will be worth more due to limited beef cow numbers.
  
  "We have this changing story out there," Robb said. "From a rancher's perspective, these cull cows could be worth far more than they were in 2003. I'm hearing purebred bulls are selling from $300 on up to $500 higher than a year ago."
  
  Davis said, "We're still trying to set the long-term stage for thecattle cycle. We've delayed this cycle another year."
  

While beef producers are enjoying the high prices, the liquidation of cattle across the US continues, and will again cut into supplies heading into 2004. Texas, which has been rebuilding cattle inventories the past three years, is an exception. The Midwest has experienced drought conditions for the last two years, preventing rebuilding efforts.

"When we go through this year's liquidating numbers, that will be a 14-year cattle cycle," Davis noted. A normal cattle cycle is approximately a 10-year period in which the number of US beef cattle is alternatively expanded and reduced over several consecutive years.

Generally, low prices occur when cattle numbers are high, precipitating several years of herd liquidation. As cattle numbers decline, prices gradually begin to rise, causing cattle producers to begin adding cattle to their herds. The cycle is relatively long due to the time lag between when a cow-calf operator decides to expand a herd, and when those additional animals reach slaughter weight.

"This is now the longest liquidation phase in the cattle cycle since we have had relevant records," Robb said. "It goes back to the late 1880s, but they didn't have good records then. The key to keeping us from rebuilding in 2004 is if we have drought in cattle country. Every year since 1996, we have had some cattle states affected by drought."

With drought and fewer cattle numbers, beef producers are managing to still place cattle in feedlots.

"How are we doing that? Number one, we are still using a large percentage of heifers off each year's calf crop," Davis said. "In fact, heifer slaughter has made up nearly 40% of federally inspected steer and heifer slaughter for the past few years. The other thing is we are pulling cattle younger and lighter. Our slaughter ages have been pushed down.

"We were slaughtering cattle at 16 months to 17 months, now we're looking at 13 months to 14 months on these cattle. The feedlots are trying to keep up their numbers. That's been the trend the whole year."