When Will The Cattle Herd Rebuilding Start?

During the last week in July, joint annual meetings of the Agricultural and Applied Economics Association and the Western Agricultural Economics Association and annual meetings of the National Cattlemen?s Beef Association and the Livestock Marketing Information Center Technical Advisory Committee were all held in Denver, Colorado. All four authors of the In The Cattle Market columns and many of our counterparts from around the country attended at least parts of these meetings.

A topic of conversation, both formally and informally, at those meetings was what has happened to the traditional cattle cycle and when will beef herd rebuilding begin. The following comments are points from some of those discussions and come from many different sources.

The traditional supply driven, approximate 10-year cattle cycle usually included 6 to 8 years of increasing numbers followed by 3 to 4 years of liquidation. However, in the past decade beef cow numbers only increased in 2005 and 2006. And, on July 23, the Friday before all the meetings, USDA National Agricultural Statistics Service (NASS) released the semi-annual cattle inventory report. NASS reported beef cows and heifers that have calved 31.7 million head on July 1, down 500,000 head from last year. The
number of beef heifers over 500 lbs kept for replacement was down 2.2 percent at 4.4 million head. So, with both fewer beef cows and replacements, beef herd expansion will likely not take place this year.

Of course, the past decade was marred with a variety of unexpected events, some catastrophic, that forced cattle producers to crisis manage from one event to the next. Some of these events include starting the decade with the 9-11-2001 terrorist attack and subsequent decline in beef demand and prices. Then the discovery of BSE in Canada and the U.S. in 2003 followed with major disruptions in international beef trade. Major droughts in several important cattle regions also materialized. Corn-based ethanol for fuel increased from the mid-decade on which caused increased demand for corn and increasing and volatile feed grain prices. 2008 saw an extreme escalation of
all commodity and input prices followed by a severe decline by the end of the year. The U.S. and world economic crisis and the unfortunate misnaming of the H1N1 virus negatively impacted all livestock and meat demand in 2009.

Other points brought up included the increasing average age of cow-calf producers, the relatively large number of small farms/ranches with cattle, historically high cull cow and bull prices, loss of pasture and range to crops and other uses, more cautious lending practices, and severe winter weather in the Northern Plains the last two years and throughout the country last year. There are other reasons as well, but with all the uncertainty and volatility in prices it is no wonder why producers have been reluctant to increase beef herds.

Will the next decade be different? No one knows that answer but there are some encouraging signs in 2010. Although there are a few dry pockets, many cattle producing regions in the U.S. are experiencing the best pasture and range conditions in the past decade. The export demand for beef is improving with U.S. beef sales up about 25 percent from last year. The domestic economy is still struggling but improvement should take place in the next few years. Cow, bull and feeder cattle prices have improved and
the cow-calf sector should see better profitability. And lower beef production is likely for the next couple of years which should be supportive to cattle prices. Producers are showing renewed interest in replacement heifers and bred cows and heifers as those prices have been stronger in 2010.

The Markets
Fed cattle prices were unchanged for the week with light to moderate movement and demand. Across the 5-area market, live prices averaged $93/cwt, 12 cents higher than the previous week. Dressed prices declined 33 cents to average 147.54. Wholesale beef prices lost ground as the U.S. economy continues to struggle and lackluster summer beef demand continued to be affected by very hot temperatures in parts of the country. Choice boxed beef prices declined $3.17 for the week and closed at $150.84. A lower undertone was noted in much of the feeder cattle complex as high heat indexes stymied some of the aggressiveness of feedlot buyers. The 700-800 lb steers were $1-4 lower in Montana, Nebraska and Oklahoma. The 500-600 lb steers were also lower in Montana and Oklahoma, but advanced nearly $15 on strong demand and limited numbers in Nebraska. Corn prices rallied on drought news from the Black Sea region, and increased 20 cents to close at $3.64 in Omaha on Thursday. Distillers grain prices also
followed corn upward.
Source: Tim Petry, Livestock Economist, North Dakota State University Extension Service

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