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"Late 2006 and early 2007 remain a vulnerable period for the
cattle industry as higher beef supplies are interfacing with
delays in restoring beef exports to Asia," said Chris Hurt.
"Slowing U.S. economic growth in the face of rising energy costs
may also reduce beef expenditures." Hurt's comments came as he
reviewed the current state of the U.S. cattle industry following
the USDA's midyear report on cattle. The report revealed that
cattle expansion remains slow, with a total cattle inventory of
105.7 million head, just 1 percent greater than last year at
this time.
The calf crop for 2006 is estimated at 37.9 million,
fractionally higher than last year.
"The beef industry is in the second year of a brood cow
expansion, but so far the growth is very moderate," said Hurt.
"Beef cow numbers reached a cycle-low level in July 2004 at 33.4
million head. This summer's inventory of 33.8 million head is
just slightly over a 1 percent expansion in the past two years.
So clearly, there is no rush to grow brood cow numbers.
"In addition, producers report they do not intend to increase
cow numbers in the near future, as they are retaining the same
number of beef replacement heifers as last year. This means they
are replacing cull cows but are not likely to expand in the
coming year."
Dairy cow numbers were up 1 percent, and replacement milk
heifers were up nearly 3 percent. Hurt said that this seems to
be signaling interest in growing the dairy herd in the coming
year, even in the face of $12 to $13 milk prices for this year
and into 2007.
"The report's bearish surprise came in a much higher than
expected level of placements into feedlots in June," said Hurt.
"Given the dismal financial performance for feedlot cattle so
far this summer, there was an anticipation that placements would
be down about 1 percent.
"However, the USDA reports June placements rising 10 percent
above the year-previous figures."
The large placement surge was made on lightweight calves.
Placements weighing less than 700 pounds were up 31 percent,
with those under 600 pounds up 37 percent and 600 to 699 pounds
up 24 percent.
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"On the other hand, the number of calves weighing over 700 pounds
was actually down 5 percent," Hurt noted. "The location of the large
placement of lightweight calves is related to ongoing dry weather in
the central and northern Plains. Colorado placements were up 35
percent, those in Nebraska were up 28 percent, and Kansas was up 11
percent."Of the four largest cattle-feeding
states, only Texas had lower placements, down 4 percent. Pastures
have just been too dry to support calves, and they have been moved
to feedlots earlier than intended."
In the USDA's Crop Progress report released July 17, Colorado
pastures were rated 65 percent in "poor" or "very poor" condition.
These numbers stood at 61 percent for Oklahoma, 58 percent in
Nebraska and 52 percent in South Dakota.
So far this year, beef supplies have been up almost 7 percent on
4 percent higher slaughter numbers and 3 percent higher weights.
Choice steer prices have averaged about $84.50, roughly $2.50 lower
than during the same period in 2005. Overall demand has held well
this year with supplies 7 percent higher and prices only down 3
percent.
"Finished cattle prices will likely trade lower, into the higher
$70s, for the end of summer," Hurt said. "Prices are expected to
recover into the lower to mid-$80s by fall, with prices somewhat
above the mid-$80s by the end of the year.
"For 2007, beef production is expected to be up 1 to 3 percent.
While this year's calf crop is estimated as only fractionally
larger, weights will likely be up some next year, but not as much as
this year, due to higher feed costs and higher interest rates."
Hurt added that feeder cattle and calf prices may feel some
downward price pressure this fall and in 2007 as well. Calf prices
this year have been only about $1 per hundredweight lower compared
with the same period last year.
"Lower calf prices are expected to result from lower finished
cattle prices, higher feed costs over the next year and higher
interest rates," said Hurt. "Given an environment of slowing U.S.
economic growth with high energy prices, this makes the rest of 2006
and early 2007 a vulnerable period for cattle finishers and adds new
importance to getting 'back on track' with the Japanese."
[University
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]
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