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Good news for cattlemen could be passing quickly
There is good news in the cattle markets, but you'd better look quick. After this year, the outlook gets more bleak by the year.
That was the message delivered yesterday at the Cattle Industry Convention and Trade Show in Denver. At the annual Cattle-Fax outlook seminar, speakers said that 2006 will likely be the final stage of this high price phase of the cattle cycle.
Cattle numbers are building by every measure. The recent USDA cattle inventory report pegged total cattle numbers at 97.1 million head going into this year, up a little from last year. Cow slaughter last year was the smallest in 40 years, indicating a buildup in the cow herd. Heifer slaughter also reached a cycle low, meaning that within three years the beef cow inventory could be 5% higher than now. "The die is caste for the rest of this decade," said Mike Miller of Cattle-Fax.
Couple that with a growth in feeder cattle imports from Canada this year, increases in slaughter weights due to cheap feed and falling prices, and the unkown about beef exports, and the cattle market starts to fall off before this year is over, said Kevin Good, another Cattle-Fax market analyst. "Our feedlots are very full, and we think there are about 750,000 more head on feed now than last year. We can probably hold this market together at $90 or better for fed cattle for the next 30-40 days, but after that it starts to fall off."
His prediction is that cattle will average $85 for 2006, with the summer low of about $80. He thinks we can rally from there into the upper $80s in the fourth quarter. But the trend will be down every year for the rest of the decade.
As for calf prices, he thinks $1.35 will be the spring high for 550-pounders. That will decline to $1.15 in the fall, with a yearly average of about $1.20-$1.25. "That's still a good level for cow/calf producers," he said.
As for the longer term, Randy Blach, the Cattle-Fax executive vice president, reminded beef producers that we are not looking at a train wreck in the cattle market, but the best of the news for this cattle cycle is behind us. We've got more cattle coming, plus more competition from beef and pork. Retail beef demand has been tremendous since the late 1990s, but there is some indication that the growth peaked in 2004 and has since slowed. Plus, exports are a huge question mark, with the Japan market currently closed.
"We could have 3 billion more pounds of beef to consume by the year 2010, from just over 25 billion pounds now to over 28 billion pounds then," Blach said. "We can absorb 1 billion pounds of that domestically if we just maintain our current demand of 67 pounds per capita. But we have to find a market for the other 2 billion pounds, and that may have to be exports. It's critical we get Japan, South Korea, Russia, and other markets opened. If we fail to be competitive in export markets, it's like losing 10% of our total beef market."
Blach said that Cattle-Fax projects that cattle prices have moved to new support levels. When fed cattle prices bottom in this upcoming down cycle, they think the bottom will be in the $70s, rather than the $50s. And feeder cattle will bottom around $90, rather than in the $60s.
One of the biggest wild cards in these assumptions is weather. The drought in Texas, Oklahoma, Arkansas and Missouri could push more cows to market this year. Those states represent about one-third of the beef cow inventory in the U.S. Art Douglas, a meteorologist from Creighton University, said his weather models suggest the drought in that area will continue this year, but won't be as bad as last year.
Douglas also said that our mild winter weather is about to go away. Around February 12, we are due for a cold blast from Canada that will plunge temperatures in the western half of the Midwest below zero. The east will be cold, but will recover to more normal temperatures more quickly. The cold weather will bring some moisture with it, maybe up to an inch of rain equivalent. He predicts a wet spring in the far northern Plains, but dry in the central Plains, the Midwest, and the East Coast.
The summer will bring another good hurricane season, with maybe five intense hurricanes compared to an average of two. Above normal temperatures will predominate across the Corn Belt, and that drought in the southern Plains will go on. "Remember, this current pattern of hurricanes in the Southeast, and drought in the Southwest, looks like it could go on for 15 years," said Douglas. He bases that on his long-term water temperature patters in the Atlantic and Pacific oceans.
There is good news in the cattle markets, but you'd better look quick. After this year, the outlook gets more bleak by the year. That was the message delivered yesterday at the Cattle Industry Convention and Trade Show in Denver. At the annual Cattle-Fax outlook seminar, speakers said that 2006 will likely be the final stage of this high price phase of the cattle cycle.