For all of the pessimistic headlines and real day-to-day financial challenges presented by the recession, there’s plenty of room for optimism when it comes to the future of the cattle business.

“The ongoing world economic slowdown underpins a retreat in global consumption, trade and prices in the near term, reducing U.S. ag trade value and farm income from 2008 levels. However, once global economies recover, steady domestic and international economic growth supports gains in the U.S. ag sector. In addition, long-run developments reflect continued demand for ag commodities for the production of bio-fuels. Thus, after declining in the near term, farm income and U.S. ag trade grow through the rest of the projection period. Retail food prices rise faster than the general inflation rate through 2011, partly reflecting higher meat prices due to livestock-sector adjustments to increased feed costs.”

That’s according to the USDA Economic Research Service “Agricultural Projections to 2018,” which was published in February. Plenty of assumptions are necessarily part of such a long-range forecast, but the logic behind the conclusions makes a world of sense.

Specific to the cattle business, the USDA report concludes, “Higher grain prices as well as effects of drought on pasture conditions in recent years hold down cattle inventories, pushing U.S. beef production down in 2009-12. Production then rises in the remainder of the projection period as returns improve and herds are rebuilt. The total cattle inventory drops below 94 million head before expanding to about 97 million at the end of the projection period.”

That’s 97 million head in 2018. That’s the same cattle inventory as on Jan. 1, 2007. Considering that the Jan. 1 inventory this year was 94.5 million, we’re talking one flat cycle.

“Increasing livestock prices over the first half of the projection period result from lower production as the sector adjusts to higher feed costs. Once the production adjustments have occurred, prices level off at a new higher plane,” predict the analysts.

On the other side of the ledger, the USDA folks say, “Feed expenses, which rose rapidly in recent years with higher corn prices, decline over the next several years as corn prices retreat and the livestock sector is reduced. Moderate increases in feed expenses are then projected as the livestock sector resumes growth.”

Combined, the long-term outlook projects relatively stable cash operating margins at 75-77%, as cash receipts and gross cash income rise at close to the same pace as cash expenses.

“Net farm income declines in the near term from the high levels of 2007 and 2008, but remains historically strong and rebounds to near-record levels by the end of the projections,” the report says.

Among other highlights:

  • “Even with higher meat prices and near-term recession in the U.S., rising U.S. incomes over most of the next decade facilitate gains in consumer spending on meat. Continuing a long-term trend, overall meat expenditures represent a declining proportion of disposable income.
  • “With higher prices, government payments have a smaller role in the ag sector’s income. Government payments, which represented more than 8% of gross cash income in 2005, account for less than 3% during most of the projection period. Conversely, the sector relies on the market for more of its income. Cash receipts plus farm-related income rise to over 97% of gross cash income.
  • “The value of U.S. ag exports declines over the next two years from the peak reached in fiscal year 2008, but then rises through the remainder of the projections due to increases in both export volumes and prices. A resumption of domestic economic growth boosts U.S. ag imports.
  • “High prices for ag commodities and energy contributed to U.S. consumer food prices rising more than the general inflation rate in 2008. Retail food prices continue to rise faster than overall inflation through 2011, partly reflecting higher meat prices (particularly in 2010 and 2011) as the livestock sector adjusts to increased feed costs. Then consumer food prices in the U.S. return to the longer-term relationship of rising less than the general inflation rate over the remainder of the projection period.
  • “The growth in world per-capita meat consumption slows during the coming decade to about 0.3%/year. Still, meat shipments from major exporters trend upwards at 1.3%/year. Growth rates of exports from major exporters of beef, pork and poultry meat average 1.4%, 1.7% and 0.9%/year, respectively, between 2009 and 2018. During this period, exports rise 0.9 million tons for beef, 0.9 million for pork, and 0.7 million for poultry. Rising per-capita incomes combined with population growth in a number of countries are the driving forces behind the projected growth in global meat demand.”