Dateline: June 3, 2004

Strong beef prices expected to continue

COLLEGE STATION -- Fed cattle prices are predicted to decline slightly this summer as beef supplies become seasonally larger, but prices should rebound again this fall as feeder cattle supplies tighten, a Texas Extension economist said.

“We’re going to be pulling cattle forward in July, August, and September; but we’re not going to have large numbers,” said Dr. Ernie Davis, Extension livestock marketing economist. “And the weights on those cattle may not go up if grain prices increase.”

Cattle prices have remained strong through the first quarter of 2004, but several key factors could stir the market: Future discovery of mad cow disease, high grain prices, and future terrorist attacks leading up to the November presidential election could impact trading activity, Davis said.

The current beef market continues to ignore what some in the industry thought would be negative effects on pricing. Upon announcement of the first confirmed case of mad cow disease in the United States last December, the market dipped for only a week before bouncing back.

Most recently, the futures market continued to climb amid a federal investigation as to why a suspect cow at a San Angelo packing facility was not tested after staggering and falling down. The U.S. Department of Agriculture is continuing its investigation into the incident.

The scenario during the fall of 2003 could happen again in 2004, Davis said. Ranchers last fall were marketing cattle at a furious pace to take advantage of high prices. Packers were also pulling feeder cattle “green” from feedlots to keep up with demand.

While Davis said the United States will not run out of feeder cattle, supplies are tight because of liquidation among cattle herds the past five years. Drought conditions in the Midwest forced a number of cattle to be sold off, and many producers have been taking advantage of high prices and selling off heifers.

Also contributing to the shortfall, Davis said, is the continued ban on live cattle trading with Canada, which has not allowed feeder steers and heifers to enter the USA.

The second quarter of 2004 saw beef production down 4.8 percent from a year ago, said Jim Robb, director of the Denver-based Livestock Marketing Information Center.

“The first quarter saw beef production down 7.8 percent,” Robb said. “There’s not many quarters in history with a minus 7 percent in front of it. Given our cattle supply, we’re still cyclically tight on cattle. With our export market representing 10 percent of our beef production, it’s something that gets harder and harder to compensate for as you get into summer months.”

Weekly slaughter has been below 600,000 head a week, he said. “We need to be around 650,000 in the next few weeks and on into summer. We’re very current right now.”

US beef cow inventory as of January 1 was at 32.86 million, compared to 32.98 million head the same time a year ago.

“That’s a reduction of 100,000 head of beef cows in the United States,” Robb said.

International trade with Japan and Korea also plays an important role, and ongoing negotiations could re-open those borders by the end of the year, increasing demand, Davis and Robb suggested.

Both Japan and Korea are big consumers of chuck and round cuts, which “as we move into the summer months, they are hard to move,” Robb said. “You don’t want to lose sight that Korea is the second or third largest export destination for U.S. beef,” he said.

Feeder supplies are predicted to remain tight on through 2006.

“The heifers being held this year, it will be 2006 before they calve,” Davis said. “It will be 2006 before we see a significant increase in beef tonnage,”

Robb added. “The fall of 2006 will be the first time you will see a decrease in feeder calf prices.”

Davis noted the marketings from the weaned calves in the summer and fall of 2006 will be big, “Then we’ll see softening in the prices for these feeder calves, probably for the first time.”