July 24, 2000
CATTLE INDUSTRY: REPORT COOLS
The USDA's July Cattle Inventory
report indicated that total cow numbers have continued to decline,
but at a slow rate. Large numbers of cattle in feedlots, low grain
prices, and a surprisingly large calf crop in 2000 all suggest
that beef supplies will not be as small as previously thought
and that cattle prices will not be as high over the next year.
In addition, the red-hot beef demand seems to have moderated.
The total number of cows on July
1 was down a very modest 0.2 percent. The number of beef cows,
at nearly 34 million head, was down .6 percent from year-ago numbers,
but dairy cow numbers grew slightly over 1 percent.
The number of beef replacement heifers
was down by 2 percent. This indicates that beef producers are
still not inclined to increase the herd size. A larger portion
of beef heifers have headed to the feedlot, as producers have
chosen to sell high priced heifer calves rather than retain them
for breeding. The beef cow herd has been in decline for 5 years.
The total decline since 1995 has been 6 percent. Beef cow numbers
are expected to begin to increase in 2001 as the next production
cycle begins. This means that some additional heifer retention
will begin either this fall or next spring.
It now appears that beef supplies
for the year 2000 will actually rise rather than fall as most
felt earlier in the year. At the beginning of this year, first-half
beef supplies were expected to be down 4 to 5 percent. Now those
supplies are expected to increase 0.5 percent. Total beef supplies
are expected to be down about 2 percent in the last-half of this
year, and down 3 to 4 percent for the first-half of 2001. These
declines are based on the anticipation of a continued slowing
of cow slaughter and a slower movement of calves through feedlots.
Prices during most of 1999 and the
first-half of 2000 were stimulated by improved demand which allowed
prices to move higher even though supplies were also higher. For
example, in the third quarter of 1999, beef supplies were up by
3 percent and steer prices were up by more than 10 percent. This
continued through the second quarter of 2000, but some of the
demand magic faded this summer. My estimate is for beef supplies
to decline by 2.5 percent, and for prices to be up 5 percent this
summer. This more normal demand relationship is expected to persist.
Finished cattle prices should begin
to recover toward the higher $60s in late summer. Current price
estimates are for Nebraska choice steers to average about $68
for the third quarter. Further strength can be expected for the
fourth quarter, with prices averaging near $70. Smaller supplies
will enhance prices in the first-half of 2001 with the first quarter
average estimated near $71 and the second quarter averaging near
$72. Daily highs in late March and April could reach the mid-$70s.
If demand were to be as strong as it was in1999, prices of Nebraska
choice steers could reach $80. For now, those lofty prices appear
to be out of reach, but remain a possibility if demand should
How strong will calf prices be this
fall? Supplies will be only slightly smaller than the fall of
1999. Corn prices will likely be modestly lower, but interest
rates are sharply higher. This means that fall calf prices will
not be substantially different that last fall when Oklahoma City
500 to 550 pound steers averaged $93 per hundredweight. Prices
are expected to be about $3 higher this fall, averaging $96 per
hundredweight. Prices in Southern Illinois and Indiana tend to
be $3 to $4 lower than these prices. Some added strength can be
expected for eastern Corn Belt calf prices in the winter and next
spring with winter prices in the higher $90s and spring prices
once more topping $1 a pound.
Feeder cattle prices will be driven
by the strength of fed cattle prices as well as by feed prices
and interest rates. Prices of 750 to 800 pound steers this fall
at Oklahoma City are expected to average about $84, the same as
last fall. Prices are expected to drop a couple of dollars in
the winter and then return to the $84 level in the spring. In
general, these price levels are not as high as the feeder cattle
futures market has recently been anticipating.
Profits from brood cow operations
will be outstanding over the next 12 months. Prices for this year's
calf crop are the best since 1993, and 2001 calf prices should
also be very high. In general, cattle prices are expected to rise
over the next 12 months, so this favors adding more weight to
calves, especially with low grain prices and abundant forage supplies
this fall. Retained ownership should also be considered if facilities,
feed, and labor are available. Cattle feeding margins will be
thinned by high priced feeder cattle and high interest rates.
Issued by Chris