Tuesday, February 05, 2008
My! This 10-Year Cattle Cycle Went By In A Hurry!
Cowboys may see the end of a long hard trail off in the distance, but some economic storm clouds may hit before they get home. That seems to be the consensus of livestock economists who have analyzed USDA’s Cattle Inventory report released last Friday. Cattle numbers are changing, the cattle cycle has been impacted, but market volatility can be expected for both cattle prices and feed costs. If you are raising cattle, how will you be affected?Four years ago the latest expansion cycle began in the cattle industry, but instead of the average ten year swing, it may be diminishing already. Nebraska livestock economist Darrell Mark calls that “pre-mature.” The inventory on January 1 was 96.67 million head, with a 338,000 liquidation of cows last year causing the turn-around. Purdue livestock economist Chris Hurt attributes that to the drought in the Southeastern US last year that destroyed pasture and forage for many livestock producers.
Beef cows numbered only 32.6 million head at the first of the year, the least amount since 1991. The beef cow herd had been expanding the past three years, but that has come to an end. Hurt’s analysis of the USDA inventory indicates the number of replacement heifers will also decline by 4%, meaning 2008 will still bring fewer cows.
While not technically in the beef category, Darrell Mark notes that the USDA’s numbers do include dairy cows, “While beef cow herd and beef replacement heifers inventories were lower than year-ago levels, the number of milk cows and dairy replacement heifers posted increases of 1.0% and 3.4%, respectively.” Hurt says the demand for dairy products will continue to push that industry to increase in size, “Strong export and domestic demand enabled milk prices to rise more rapidly than feed costs in 2007.”
But back to the beef industry, there are several other dynamics going on there. The western Cornbelt is recording a decline in cattle. After becoming a feed trough full of distillers’ dried grains, the western Cornbelt is looking at pasture as potential cornfields in the wake of $5 corn. Chris Hurt says Iowa cow numbers dropped 5% and Missouri cow numbers by 3%. Indiana and Illinois cow herds remained stable.
Another dynamic is the high price of wheat, which has caused producers to avoid grazing it in fear of damage to that increasingly valuable crop. Darrell Mark says light weight calves were taken off wheat pasture last fall and put into feedlots earlier than would be expected because of the price of wheat. USDA’s numbers indicate only two-thirds of the normal number of calves on small grain pasture are there now, compared to last year. That means fewer calves will be coming off wheat in the spring and going into feed lots.
Yet another dynamic is the movement toward more sources of cellulosic biomass for ethanol production. Chris Hurt notes that some southeastern US pastures may become production fields of switchgrass for ethanol, instead of grazing land for cattle, all because of the economics.
Cowboys have to make a buck, and it has become hard to do with high feed costs, says Purdue’s Hurt, “During the months of July and August last year, corn prices averaged near $3.25 per bushel, causing a false sense of calm. Cattle moved rapidly into feedlots from August to November, averaging an increase of 11 percent in September, October, and November. However, the more recent escalation in corn and protein meal prices resulted in placements dropping 1 percent in December. Given continued high feed prices, feedlot placements are expected to remain low this winter and spring.”
But Nebraska’s Mark says the diminished numbers of calves is also due to the surge last fall in moving them from wheat pasture into feedlots, “At 37.361 million head, last year’s calf crop was 158,000 head less than in 2006 (which was also revised lower) and was the smallest calf crop since 1951. As a result, feeder cattle supplies will remain tight for the next two to three years, supporting relatively strong prices in spite of significantly higher feed grain prices.” As far as prices go, Hurt says finished cattle prices should average about $93 for the year, about $1 higher than last year.
Summary:
The expanding cattle cycle has stopped and has begun to contract with fewer numbers of cows, replacement heifers, and calves entering feedlots. Part of the reason is high feed costs, but drought in the southeastern US hurt pastures, and high corn prices are pushing some pastures into cornfields in the western Cornbelt. With fewer cattle coming to market, live cattle prices are expected to be strong.
Posted by Stu Ellis on 02/05 at 01:47 AM | Permalink