"This is an environment in
which producers need to consider price risk management, including
the use of futures or options for hedging corn, soybean meal, feeder
cattle and finished cattle prices," said Chris Hurt.
Hurt's comments came as he
reviewed the outlook for cattle prices in 2004. The case of a dairy
cow that tested positive for mad cow disease in Washington State
brought much uncertainty to the cattle outlook for the year, but
current inventory numbers suggest even smaller domestic beef
"The size of the nation's beef
cattle herd continues to decline, even in the face of record-high
prices in 2003, clearly showing that producers' initial reaction to
high prices was to sell breeding stock and heifers rather than
retain them for herd growth," said Hurt.
As of Jan. 1, the total number
of cattle and calves had dropped to 94.9 million -- 1 percent below
last year's inventory and the lowest number in the herd since 1959.
Beef cow numbers dropped by about one-half of a percent, to the
lowest number since 1991. The continuing drought in the west central
Plains appears to be one of the important reasons why national beef
cow numbers continue to drop.
"Beef cow numbers were down 13
percent in Colorado and down 4 percent in Nebraska, Oklahoma and
North Dakota," said Hurt. "Further east, Missouri's herd was about
unchanged, Illinois was up 1 percent, and Iowa and Indiana were each
down about 1 percent.
"Producers are expected to be
hesitant to increase herds in 2004 with the uncertainty of
implications surrounding mad cow disease. Producers indicate that
they hare holding back 2 percent fewer heifers, which will mean
continued small cow numbers in the July midyear update."
Low milk prices and strong cull
cow prices also encouraged dairies to reduce the number of milk cows
by 2 percent in 2003.
"At 9 million head, milk cow
numbers are at the lowest since 1868 -- yes, three years after the
Civil War ended," Hurt noted. "Continued reduction in the size of
the milk herd is anticipated this year, as the numbers of heifers
being retained to go back into the herd is down 2 percent."
Many are wondering how mad cow
disease will impact trade in 2004. Hurt said that no one knows the
answer with a high degree of confidence, so a set of assumptions
needs to be made.
"For this analysis, it is
assumed that domestic demand is not affected by mad cow disease and
that U.S. exports are lost for the first half of 2004 but restored
in the last half," he said. "In addition, it is assumed that imports
are reduced by 15 percent in the first half and restored in the last
half of 2004. The net effect of these trade impacts is that an
additional 8.5 percent of our domestic production will need to be
consumed in the United States in the first half of the year.
[to top of second column in
"With the loss of 8.5 percent
of net trade in the first half of the year, domestic beef supplies
are expected to be up by 5 percent in the first quarter and by 3
percent in the second quarter. Assuming trade is resumed in the last
half of the year, domestic supplies will drop by about 4 percent. It
is important to realize that differences in these flows can have
dramatic impacts of $5 to $10 on cattle prices. Volatility and
rapidly changing prices could be expected characteristics of 2004
Prices of Nebraska choice
steers averaged a record $84.69 per hundredweight in 2003, capped by
an average of $99 in the last quarter. Given the assumptions for
trade above, finished steer prices are expected to average in the
very high $70s or low $80s in the first quarter, drop to an average
in the mid-$70s in the second quarter, recover a couple of dollars
in the third quarter, and be in the low $80s in the final quarter.
While finished cattle prices
will be sharply lower than last year's record, these price forecasts
provide a yearly average price in the higher $70s and would be the
second or third highest annual price on record -- 1990 was $78.56
and 2003 was $84.69.
"Feeder cattle and calf prices
will be lower than last year's prices, as the double hit of lower
fed-cattle prices and higher feed costs cuts into bids," said Hurt.
"In 2003, steer calves at Oklahoma City weighing 500 to 550 pounds
averaged $103 per hundredweight. This year, the same calves are
expected to average in the mid-$90s.
"Heifer calves at the same
location in the 450- to 500-pound range averaged $95 per
hundredweight last year and are expected to be near $90 for an
average price this year, with prices in the low $90s early in the
year and dropping to the high $80s in the summer and fall."
Feeder steers at 750 to 800
pounds at Oklahoma City averaged $90 in 2003 and are expected to
average in the low to mid-$80s this year, he added.
"The best news is that mad cow
disease, so far, has not had the devastating impacts some feared,"
said Hurt. "Loss of exports and higher feed prices are offsetting
still smaller cattle production in 2004 and likely moving cattle
"However, brood cow operations should still be able to cover all
costs of production, and finished cattle prices could be
surprisingly strong. Obviously, some cattle feeders that were
unhedged on Dec. 23 may have suffered large financial losses."
of Illinois news release]