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Feb 13, 2005
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Cattle Fax Says Liquidation
Has Ended, Volatility Remains

By Colleen Schreiber

SAN ANTONIO — Herd expansion is underway, but volatility and uncertainty are sure to remain throughout 2005.

That was part of the message delivered by the Cattle-Fax team during their annual outlook summary presented at the recent National Cattlemen's Beef Association annual convention here.

Randy Blach, executive vice president of Cattle-Fax, started the presentation with a recap of what happened in 2004.

"We need to understand where we've been before we can look forward," he told listeners.

He outlined several significant factors that played roles in the beef markets in 2004. First and foremost was the lack of export outlets. Export markets, Blach noted, account for about $14 per hundredweight on the value of fed steers and heifers, or about $175 a head. Though the U.S. has regained some of its export markets, analysts estimate some $10 to $11 cwt. in value is still being lost.

Blach noted that beef imports for the last 25 years remained relatively flat while exports grew substantially.

"We were only importing about 500 million more pounds of beef than we were exporting in the last decade until the last 12 months," Blach commented.

There was a marked imbalance of trade in 2004, however, with the net trade balance going from its annual average of a positive $1 to $1.5 billion to a negative $2 billion.

"We had the largest imbalance of trade in the history of our industry. We imported 3.2 billion more pounds of beef than we exported in the last 12 months," Blach told listeners. "Historically, we've imported about 10 million more pounds a week than we exported. In the last 12 months we've imported 60 million more pounds of beef than we've been able to export."

Despite this setback, the U.S. cattle and beef markets remained strong. Blach attributed that in part due to a significant decline in slaughter levels. Slaughter levels, in fact, were the smallest since the early 1990s. Steer and heifer slaughter was off 1.7 million head while mature cattle slaughter was off 950,000 head.

While beef production was at its smallest level since 1993, Blach pointed out, the amount of beef that had to be consumed in the domestic marketplace was the second largest in history, again due to that imbalance of trade.

The bright side of the equation was that domestic demand remained strong, as evidenced by record high fed cattle, feeder and calf prices. The annual cutout value in 2004 traded at basically the same level as the previous year at $1.43 per pound.

Analyst Dave Weaber told listeners that the eight-year cattle herd liquidation finally ended in 2004.

He noted again that cow slaughter declined approximately 18,000 head a week. Feedlot heifer placements also dropped nearly three percent in 2004, averaging nearly 32 percent for the year.

"We believe those females stayed in the country, and in fact, the recent inventory report shows a 200,000-head increase in beef replacement heifer numbers in the country. A large percentage of that is heifer calves that will be bred this coming summer."

Weaber predicted that total beef cattle inventory will be back up to about 35 million head by the end of the decade.

Thus far, Weaber told listeners, most of the expansion has taken place in the Midwest. Now that the drouth seems to be easing throughout much of the country, he said, restocking will also begin again in the West as grazing conditions improve. Some states, such as Colorado, have a long way to go in terms of recovery, as total numbers are still some 160,000 head off from 2002.

In Canada, the situation is much different. Cow numbers there are record large. The January 1 inventory was some 5.3 million head, up about 300,000 compared to a year ago, Weaber said.

"We typically slaughter about 35 percent of the Canadian cows, and since those cows have not been able to come across the border, they are still in the country," Weaber noted.

There is some concern how this will impact the U.S. market once the border is reopened.

U.S. feeder cattle and calf supplies were up about two percent, some 460,000 head January 1 compared to a year earlier. This relatively small increase, Weaber noted, will keep placements fairly tight through the spring and early summer.

The speaker gave a snapshot of feeder cattle trade with Canada over the last few years. From 1998 through 2001, the U.S. sent Canada about 14,000 head more per year than were imported. A failed barley crop in 2002, however, forced more Canadian feeders into the U.S. That year numbers escalated to 460,000 head. The following year, after the first case of BSE was discovered in Canada, the borders closed and numbers dropped precipitously.

Mexican feeder cattle and calf imports, however, were nearly record large in 2004 at almost 1.35 million head, up about 100,000 head from the year before. Weaber said he anticipates a slight decline when the U.S. border reopens to Canadian cattle.

In terms of imported Canadian fed cattle, from 1998 to 2002, between 720,000 and 730,000 head on average came south, along with another million head of cows and bulls. That stopped in May 2003.

Weaber said Canada is expecting larger on-feed numbers over the coming year, close to 1.2 million head. Cattle-Fax also predicted that when the border is reopened, some 500,000 to 700,000 head of feeders will likely cross over during the remaining 10 months of 2005.

Overall, Weaber said Cattle-Fax anticipates the U.S. will slaughter about 28 million head in 2005, up 850,000 head from 2004. It will be interesting to see who will get the cow kill, Weaber noted, as Canada has grown its packing plant capacity some 22 percent over the last year.

Increased feeder cattle imports and larger fed cattle slaughter, Weaber said, will account for about a billion pounds more beef on the market in 2005, some 25.8 billion pounds in total.

Those factors, along with large calf crops and an expected five to six-pound increase in average carcass weights, will mean larger beef supplies in the coming years.

"That's why it's so critical that we continue to work on getting trade reestablished," Weaber commented. "By the end of the decade, we could be looking at 29 billion pounds of net beef supply."

Weaber concluded his remarks with an overview of the other protein competition.

Pork production, he noted, was up about three percent for the year, about a 1.1 billion-pound increase.

"Pork has taken over part of the beef market share in Japan," he told listeners. "We have our work cut out for us, as Japan has transitioned over into Australian beef or U.S pork."

Pork exports, he said, will continue to increase over the coming years.

The poultry industry saw another record year in terms of production, though their export market in 2004 suffered due to the avian influenza problem. Exports to Russia, the largest market for U.S. broiler meat, are still stagnant, down about four percent from a year ago.

"When all three of these proteins are combined on a carcass basis, we're seeing bigger protein consumption in the U.S. than ever before," Weaber noted.

Cattle-Fax expects per capita meat supplies to grow by about one percent during 2005, or three pounds per person.

"If diet trends change and demand shifts away from meat products, we're going to have a lot of product around, so we need to be cognizant of getting exports moving," Weaber concluded.

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