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"As numbers keep dropping, producers adjust inventories downward
in the face of high feed and forage prices," said Chris Hurt.
"At midyear, the number of all cattle and calves was modestly
lower than the two previous years, with total inventories near
the lows of 2004. "Beef cow numbers have dropped about 1
percent this year, reflecting continued discouragement from calf
prices below the cost of production."
Hurt's comments came as he reviewed the state of cattle
numbers and prices.
"It is somewhat surprising that beef cow numbers did not
decrease even more, given the 5 percent higher cow slaughter
rates in the first half of the year," he noted. "Producers
indicate they will continue to modestly decrease the size of the
beef cow herd in the last half of 2008, as beef heifer
replacements are down 2 percent."
In addition, the rate of heifer slaughter outpaced steer
slaughter in the first half of 2008, indicating a greater
tendency to send heifers to slaughter this year compared with
last year.
The 2008 calf crop is estimated to be down slightly, so that
the number of calves weighing less than 500 pounds is also down
slightly.
"There is more optimism in the dairy sector," Hurt added.
"Milk cow numbers were up 1 percent, and replacement heifer
numbers were unchanged from last year at this time."
High corn prices in June helped cattle feedlot managers
decide to reduce placements, which were down 9 percent, Hurt
said. The number of cattle on feed is 4 percent below
year-previous levels. Small placements in the months of March to
June will cause beef supplies to drop sharply in the
September-to-December period this fall.
"Beef production in the first half of the year was up almost
3 percent, with prices below year-previous levels," he said.
"Finished cattle prices averaged $91 in the first half, $1 lower
than a year earlier. Price for 500- to 550-pound steer calves at
Oklahoma City averaged $121 in the first half, compared to $124
earlier, as surging feed prices made calves less desirable this
year."
Hurt said that cattle prices would have been lower in the
first half of 2008 if not for improvements in trade.
"The low value of the U.S. dollar is discouraging imports and
encouraging U.S. beef exports," he said. "During the
January-to-May period, beef imports dropped by 22 percent and
beef exports surged by 34 percent. These are dramatic changes
and account for about 3 percent of U.S. production.
"Even though beef production in the United States has been up
this year, improved trade has taken all of that increase with
continued population growth; per capita availability moved below
year-ago levels in the second quarter of 2008 and will move even
lower in late 2008 and 2009. This means higher cattle prices are
likely on the way."
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Given the expected continued weakness of the U.S. dollar, it is
likely that USDA will have to revise the current forecasts of beef
trade for 2008. USDA currently expects exports to rise by only 18
percent for the year, compared with a 34 percent actual increase in
the first five months. USDA forecasts 2008 imports to be down by 12
percent for the year, compared with a 22 percent reduction in the
first five months.
"Where do cattle prices head?" he asked. "The answer is higher,
but how much? Futures markets are well aware of the anticipated
decreasing per capita supplies that U.S. beef consumers will face
for the next two to three years.
"Futures prices got ahead of the actual supply reduction in June
as Midwest flooding drove corn prices to record highs. Improving
crop production prospects have helped temper cattle futures prices
as well. As an example, August live cattle futures have dropped $8
from June 20 and cash prices of finished cattle have dropped about
$5 to the mid-$90s."
Generally, Hurt noted, finished cattle prices make their summer
lows late in the summer and begin to move higher in late August or
September.
"This year, beef supplies are expected to be about 2 percent
higher in the summer quarter and then drop by 5 percent in the final
quarter," he said. "This is when cash cattle prices will have strong
fundamentals to establish record-high prices.
"Assuming third-quarter prices average about $97 and the fourth
quarter is near $100, then 2008 choice steers will average about
$95, which is $3 above the 2007 record. We can expect to see new
record-high cattle prices in 2008, 2009 and 2010."
Calf prices will improve as well, he added. Last fall, 500- to
550-pound steer calves averaged $120 per hundredweight at Oklahoma
City. This fall, with stronger fed cattle prices and with somewhat
more moderate feed prices, steer calves will probably be in the
$120-to-$130 range. In the eastern Corn Belt, calves tend to be
about $3 to $5 lower.
"Those cow-calf producers who have held on until now should see
the fruits of their patience," said Hurt. "In 2009, more acres may
return to crop production from the Conservation Reserve Program.
Hopefully, more haying and grazing will be allowed from CRP acres as
well.
"The massive surge in corn ethanol demand will begin to level
off, especially for the 2009 corn crop. World grain production may
move higher and beef trade should continue to improve dramatically.
Cattle prices should be trending higher over the next several years,
with some potential for relief from extreme feed prices."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences] |
