June 23, 2001
DECLINING BEEF HERD MEANS CONTINUED
High calf prices and robust profitability
have not stimulated beef cow producers to initiate a breeding
herd expansion, according to USDA's July Cattle report. The number
of beef cows decreased slightly this year, continuing a slow liquidation,
and now stand at the lowest level since 1995. Numbers are not
likely to begin growing anytime soon, as the number of heifers
being retained for the cow herd is down 2 percent. The calf crop
and total beef production will continue to drop this year and
through 2002. Current USDA projections are for per capita beef
supplies to drop 4 percent this year and an additional 4 percent
next year. At 64 pounds per person, beef supplies will be at the
lowest level since the 1960s.
Beef cow producers have been more
willing to send cows to slaughter than to retain heifers for herd
replacement. In the first-half of 2001, cow slaughter was a surprising
6 percent higher than during the same period last year. The large
cow slaughter partially offset a nearly 6 percent reduction in
the number of steers and heifers slaughtered during the first-half
of the year. With lighter weights, beef production in the first-half
of the year was down 5 percent and fed cattle prices averaged
a bit over $77.
The number of milk cows at mid-year
was down about 1 percent and the number of milk replacement heifers
was down 3 percent. The milk cow herd will be dropping again in
2002 and will provide an even smaller supply of feeder steers.
While the long term price outlook
remains very positive, the number of cattle placed on-feed during
June was up a surprising 18 percent. With marketings down 2 percent,
there were 6 percent more cattle in feedlots than on July 1 last
year. With low-priced grain, there has been a tendency for calves
to be placed in feedlots at lighter weights. However, June placements
showed increases in all weight categories. For example, placements
were up 8 percent for calves weighing over 800 pounds and up 21
percent for calves weighing less than 600 pounds. The increased
placements of heavy cattle into feedlots will keep fall supplies
somewhat higher than had been expected.
The harsh weather last winter was
expected to reduce the size of the 2001 calf crop. However, that
crop is now estimated at 38.4 million head, down only about 1
percent from the crop of 2000. The decrease in the calf crop is
almost identical to the decrease in the cow herd, indicating no
excessive calf losses during the early months of 2001.
Beef supplies will remain below
year previous levels through 2002, declining by 2-3 percent this
fall and continuing that rate of decline through next summer.
At some point in the next 18 months, beef cow producers are likely
to make a shift toward expansion. The result will be a reduction
in the current high rate of cow slaughter and a greater heifer
retention which will rapidly reduce slaughter supplies. At that
time, prices are likely to reach the highest level on this cycle.
After reaching lows in the very low $70's, finished cattle prices
should begin to recover toward the mid-$70's by late summer and
fall. Fall prices are expected to average in the mid to higher
$70s. Prices could top the $80 mark on some days in March and
early April. Average prices in the winter and spring are expected
to be in the higher $70's.
With low grain prices, low interest
rates, tight supplies of calves, and prospects for improving finished
cattle prices, calf and feeder cattle prices can be expected to
remain very strong this fall. Last fall, 500 to 550 pound steer
calves at Oklahoma City averaged $98 per hundredweight. If the
corn and soybean crops develop normally this summer, calf prices
will likely average around $1.00 to $1.03 per pound this fall.
In the fall of 2000, 750 to 800 pound feeders steers at Oklahoma
City averaged nearly $89 per hundred weight. Prices may be in
the higher $80s to low $90s this fall. Generally, eastern corn
belt calves and feeder cattle are $3 to $5 lower than Oklahoma
When will cattle producers turn
towards expansion? At this point they remain very cautious. Beef
demand trended downward from the mid 1970s until the late 1990s.
Additional concerns have been related to the devastating impacts
that mad cow disease in Europe has had on beef demand there. Even
Asian customers have reduced beef consumption as a result of concerns
over European disease problems. Media attention given to foot
and mouth disease has also kept producers cautious about expanding.
However, beef demand has seemingly been improving since 1998 and
it is likely that the U.S. economy will show more rapid recovery
and growth in late 2001 and 2002. All of this adds up to the possibility
of very high cattle prices in 2002 that will provide the stimulus
Issued by Chris