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"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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