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[JULY 26, 2005]  URBANA -- Beef supplies may rise by as much as 7 percent in the last half of 2005 and be up by 6 percent to 7 percent in the first half of 2006, said a Purdue University Extension specialist.

"With the Canadian border opened to live beef cattle, more cattle in the feedlot pipelines and more heifers saved back to increase the size of the brood cow herd, some would say the party is over for high cattle prices," Chris Hurt said.

"Even though beef demand has been solid in the past year, supply increases of this magnitude will likely depress prices. In the last 12 months, finished steers averaged $86.44 per hundredweight, but that number may be closer to the high $70s in the next 12 months."

The specialist said consumers should be happy because retail prices should moderate soon. Retail beef prices hit a record high of $4.19 per pound this year, he noted.

How many cattle may come from Canada now that the border has been opened? It will likely take some time for flows to adjust, but prices have been depressed in Canada, and animals will quickly flow to the U.S. unless additional constraints are placed on their movement, he said.

As an example, at the start of July, Ontario finished steers were about $9 per hundredweight lower than similar cattle in the U.S., while Alberta steers were $16 lower. Canadian and U.S. prices should be comparable with an open border, with Canadian cattle several dollars lower to cover transportation costs to U.S. packers, he said.

"The year 2002 was the last full calendar year of live imports from Canada, and the U.S. imported 1.7 million head, approaching 5 percent of U.S. slaughter," Hurt said. "Since then, the size of the Canadian calf crop has increased by 300,000 head, but their slaughter capacity has grown by 900,000 head. This may mean that something close to a million head of cattle could flow to the U.S. annually, increasing U.S. beef supplies about 3 percent."

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Total U.S. cattle inventory numbers on June 1 were up about 1 percent as well. "The cattle herd continues to expand, with nearly 1 percent more beef and dairy cows in the herd," he said. "Even more growth appears to be on the way, with 4 percent more beef heifers being retained to go back to the brood herd and 3 percent more dairy heifers. Finally, on-feed numbers at the start of July were up 3 percent."

According to the specialist, finished steer prices have dropped to about $79 and may have a few more dollars to go before reaching their lows by the end of the summer. Fall and winter prices should recover into the lower $80s and perhaps the mid-$80s by early spring, he said. Reduced price expectations for finished cattle and higher feed prices will continue to put downward pressure on feeder calf and calf prices this fall as well.

However, one unresolved BSE issue could change these potentially lower prices, and that is the opportunity to open beef export markets. "In 2003, beef exports were nearly 10 percent of our domestic production," he said. "While we would not be able to initially regain all of our export business, the clearest solution to our beef supply woes is to move toward a resolution with the Japanese on BSE testing.

"Prospects for settling these differences do not look promising. But lower cattle prices will cause the U.S. cattle industry to put increasing pressure on the USDA to accept testing protocols that will meet Japanese standards. Opening world beef markets to our exports will be the final leg of a long BSE journey. Unfortunately, we cannot yet see when the last leg of that journey will be completed."

[News release from the University of Illinois College of Agricultural, Consumer and Environmental Sciences]

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