Cattle Equilibrium Near?

Projections for historically high cow-calf returns for the next couple of years may be enough to entice herd expansion, but only modestly, if the latest 10-year baseline from the Food and Agricultural Policy Research Institute at the University of Missouri (FAPRI-MU) is close to correct.

According to U.S. Baseline Briefing Book, released by FAPRI-MU this week, the U.S. beef cowherd will grow 4% (basis the FAPRI 2012 estimate) to 31.5 million cows by 2017 and then remain static through 2021.

For all practical purposes, the beef cowherd has declined 17% since 1995. There were 34.1% fewer beef cows when 2012 started than there were in 1975.

According to the projections, average cow-calf returns will be $134.90/cow this year, $157.54 in 2013 and $147.24 in 2014. Returns are projected to fall to $93.86 in 2015, $53.29 in 2016; $21.22 in 2017; $6.03 in 2018.

If so, high-priced replacements purchased during the front end of the expansion phase could be facing some economic headwinds before dropping the first calf.

Projected prices for feeder steers (basis Oklahoma City 600-650 lbs.) are pegged at an average of $153.61 this year, $162.61 in 2013, and $162.13 in 2014.

Projected average fed steer prices (basis 5-area Direct, all grades) are forecast at $124.83 this year, $126.51 next year and $126.67 in 2014.

Among the beef highlights in this year's FAPRI-MU projections:

• Record cow-calf returns are expected for much of 2012-2014.
• Assuming normal weather, the national beef cowherd should grow in the medium term.
• In 2011, fed steer and feeder steer prices were 35-40% above 2009 levels.
• Increasingly tight calf supplies for the next couple of years will continue to exert upward pressure on feeder animal prices. This could place feedlots in a difficult financial situation, depending upon feed price movements.
• Beef packers will need record wholesale boxed beef prices in order to offset expensive fed steer costs.
• While exports have gained much of the media attention, the 1.5-billion-lb. decrease in beef imports from 2005-2011 is almost as large as the 2.1-billion-lb. export gain during the same period.
• A relatively weak dollar and tight beef supplies worldwide would continue to place the U.S. in a position to take advantage of world beef markets in the next decade.

The annual 10-year baseline projections---for U.S. agricultural and bio-fuel markets---from FAPRI-MU provide analysis of markets and policies for Congress and other decision makers.