WEST LAFAYETTE, Ind. – -Despite shrinking supplies and favorable demand which has led to the highest prices since 1990, two factors loom over the cattle industry’s celebration of its current good fortune.
“Two issues are lurking in the shadows and could derail the party,” said Purdue University’s Chris Hurt. “The issues are the slowdown in the general economy and media attention being given to mad cow disease in Europe and questions of whether it could happen here.”
Hurt noted that total cattle inventory on Jan. 1 was down 1 percent from last year and down 6 percent from 1996 when the liquidation phase of the current cycle began. Beef cow numbers dropped 0.5 percent, while milk cow numbers were unchanged.
Gearing up?
“There are indications that beef producers are now ready to shift into expansion,” said Hurt. “The number of beef heifers being retained to return to the cow herd was up 1.5 percent and milk replacement heifers were up 1.2 percent.
The number of steers and heifers weighing over 500 pounds was down 1 percent, which Hurt says means a smaller number of cattle coming out of feedlots in the first half of the year.
The number of calves weighing less than 500 pounds, which will supply last-half slaughter, was down 3.5 percent. Added to a smaller steer and heifer slaughter will be a 3 percent reduction in cow and bull slaughter.
Beef cows down.
Beef cow numbers continued to decline in the eastern Corn Belt. Indiana and Michigan saw numbers drop by 11 percent, Illinois by 6 percent, and Ohio by 2 percent. Only Wisconsin had an increase (5 percent).
An increase in milk cow numbers occurred in Indiana (9 percent) and in Ohio (3 percent). Both of these states had new investments in large scale milk production in 2000.
Milk cow numbers in Michigan were unchanged, while those in Illinois and Wisconsin were down 2 percent.
Commercial beef production is expected to drop by 3.5 percent in 2001, to 25.8 billion pounds, said Hurt. First-half supplies are expected to be down 3 percent, with second-half supplies down 4 percent.
Lighter weights.
“Market weights will be critical to final supplies,” Hurt said. “Last year, cheap feed and rising cattle prices encouraged weights to move up by 1.4 percent. However, since early December, weights have been down about 0.5 percent. This is thought to be a result of cold weather in December and high cattle prices in January, which have encouraged feedlot managers to move cattle to market somewhat earlier.”
Hurt said lighter weights contributed to higher-than-expected prices in December and January.
Demand increasing.
For 2000, Nebraska finished steer prices averaged $69.65, an increase of 6 percent with supplies up 1.5 percent. An increase in price when supplies are also larger in generally considered to reflect increasing demand. The same was true in 1999, when prices were up 7 percent with supplies up 3 percent.
“If demand continues to improve this year, it is hard to imagine how high cattle prices could be,” said Hurt.
Price outlook.
Prices of finished steers are expected to average in the high $70s for the first quarter of 2001. Early spring highs could reach the lower $80s.
Prices are expected to drop from early April, reaching the lower $70s by the end of the summer. Prices are expected to recover in the fall and average in the $75 to $79 range for the last quarter of the year.
Steer calves at Oklahoma City weighing 500 to 550 pounds averaged $1.02 per pound in 2000 and are expected to be about 4 cents a pound higher this year. Feeder steers weighing 750 to 800 pounds averaged 86 cents per pound last year and should be 3 to 4 cents higher this year. Prices in the eastern Corn Belt tend to be 3 to 5 cents lower.
“Cow/calf enterprises have been profitable since 1997 and should be again this year,” said Hurt. “Expansion can be expected and retained heifers will draw down slaughter supplies and keep prices strong.
Link to economy.
“One threat to high-priced cattle is the slowing general economy. My current estimates suggest that each 1 percent growth in the economy relates to $1 higher cattle prices. If the economy were to slow down to a zero-to-one percent growth, this could reduce cattle prices by $2 to $4.”
The counter argument is that the economy already slowed in December and January, yet cattle prices were higher. The impact on consumer demand likely lags the slowing economy somewhat, especially as higher energy costs are just being realized by many households, Hurt said.
Mad cow disease.
The other major concern mentioned by Hurt is media attention being given to mad cow disease in Europe and whether it can happen in the United States.
“Even without an outbreak, media attention could dilute the heightened demand for beef,” said Hurt.
