Cyclically strong cattle prices are forecast for the cattle feeding industry the next two years. Just how strong those prices will be depends on two major factors.
- Whether domestic beef demand continues to post year-to-year increases.
- How aggressively cow-calf producers hold back heifers for breeding.
Shrinking supplies are a key. In fact, year-to-year declines in cattle slaughter and beef production are expected throughout 2001 and 2002.
Producers are expected to start expanding herds in 2001. The aggressiveness of that expansion will determine how sharply slaughter supplies decline next year and the impact on slaughter and feeder cattle prices.
Growth in beef demand during 1999 and 2000 was tied to strength in the U.S. economy. Another likely factor was improving consumer attitudes about beef, though it’s not clear just how large a role this played in the beef demand rebound.
Evidence is growing that the U.S. economy will continue to slow during 2001. Since part of the beef demand improvement was tied to strong economic growth, it could cause beef demand growth to slow down.
As a result, look for domestic beef demand to keep on growing, but at a slower pace than in either 1999 or 2000.
Rising U.S. prices over the next year mean importers will shift some purchases from the U.S. to other countries and to competing meats, such as pork and chicken.
Beef exports could remain soft throughout much of 2001. That means U.S. beef and cattle prices will not receive much support from export growth.
U.S. beef import tonnage will also be influenced by developments overseas. The worldwide economy and BSE problems in Europe and other regions may redirect more beef to the U.S., especially from the Southern Hemisphere.
Competing meats and poultry supplies will likely be more important over the next two years than in 2000. Record U.S. pork production is forecast in 2001 (19.7 billion lbs., a 3.6% increase over 2000). As a result, pork prices will become increasingly price competitive with beef.
Broiler output, meanwhile, will likely increase only modestly in 2001, but poultry prices will be increasingly attractive given rising beef prices.
Feed grain prices pose a risk to calf and yearling prices. Low feed grain prices were bid into calf and yearling prices in 2000. Any negative impacts will emerge with the new crop year.
At least until the 2001 corn is planted, feeder cattle prices will remain strong. Still, corn prices may have already posted their lows for the next two years and could move higher even without a significant crop failure.
From January-August 2000, cattle feeders placed more cattle on feed than in 1999, partly by borrowing against future supplies of feeder cattle. As a result, supplies of heavyweight feeders tightened up in fall 2000.
Feeder cattle supplies remained tight the first two months of 2001. As a result, the odds are high placements will fall below a year ago.
Reductions in placements on feed will lead to a gradual tightening of fed cattle supplies this coming winter and next spring.
Some of the year-to-year decline in slaughter will likely be made up for by heavier average slaughter weights.
For the year, U.S. beef production is forecast to be 2-3% below 2000. As a result, average fed cattle prices could reach the high $70s, possibly even $80s, in the first half of 2001. For the year, fed cattle prices are expected to average in the low to mid $70s/cwt. Look for yearling steer (700-800 lbs.) prices to be mostly in the high $80s to low $90s/cwt.
Spring calf prices are expected to exceed the highs established in spring 2000 when the mid-point of the weekly price range at Dodge City topped out near $103/cwt.
For calendar 2001, yearling steers (700-800 lbs.) in the Southern Plains may average near $90/cwt., slightly above 2000. Steer calf prices could average in the high $90s, even as high as $100. Overall, a 1-4% year-to-year increase in yearling and calf prices is forecast.
The stage for 2002 cattle prices will be set by developments in 2001. Preliminary forecasts suggest another modest decline (1-3%) in 2002 U.S. beef production, larger pork production through at least the first half of 2002 and continued modest to trend growth in poultry.
Without reversal of recent beef demand trends or some other shock, 2002 fed cattle prices will likely post a year-to-year gain. Higher fed cattle prices, a normal corn crop and tighter feeder supplies should provide modest increases in calf and yearling prices, with 2002 bringing the highest calf prices of the current price cycle.
- Compiled by Clint Peck from information of the Livestock Marketing Information Center, Lakewood, CO.