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Speaker Says Beef Cycle Price

HAY MAKER

Well-known member
Speaker Says Beef Cycle Price
Peak Came And Went Last Year

By David Bowser

OKLAHOMA CITY — The highest price in this beef cycle was last year, says Dr. John Lawrence of Iowa State University.

Speaking to the Oklahoma Cattlemen's Association here last month, Lawrence said a number of things can impact that prediction, though.

"We've got growing beef supplies," Lawrence said.

There should also be growth in exports with Japan opening back up, though it will take a while to develop.

"We are growing exports, starting from a little base and trying to rebuild things," Lawrence said, "but we are growing."

The drouth will also play a part in price levels over the next year or so.

There is also the price of corn. The growing popularity of ethanol may push it up.

"I think we've got lower prices ahead," Lawrence said. "I think on the fed side, we've got steeply lower prices."

He is predicting mid-$80s by Thanksgiving.

"I think we'll probably sell some cattle over $90 next spring," Lawrence said. "Probably earlier in the year."

He said calves are at risk. The price of calves depends upon whether feedyards can keep paying for them at current levels.

"I think we're heading down," Lawrence said, "but not as far as we have in the past."

He also said the expansion of the nation's cowherd will be slower than in the past.

"I think we're growing supplies this year and on into the future for a while," Lawrence said. "The expansion is continuing, but very slowly."

Cow numbers are up only four-tenths of a percent, he pointed out.

"Heifer numbers are dead even with a year ago," Lawrence said.

Last year the annual average price was $1.29 on six-weight steers, $112 on yearlings and $88 on feds.

"I think that's going to be the highest point of this cycle," Lawrence said. "I think that's your annual average price."

In the last cycle, cattle prices bottomed out in 1979, then peaked around 1990 or 1991. They came down in 1996 and then went back up.

"In the '79 to '86 cycle, calves lost about 25 percent of their value on the annual average," Lawrence said. "That was the price decline."

Yearlings dropped about 23 percent. Fed cattle dropped about 13 percent.

"If we look at 1996," he said, "the drop was a little more severe, but we had some four-dollar corn. That really hammered the calves and yearlings further than maybe they would have dropped otherwise."

He doesn't think the drop will be as precipitous this time.

"I think we're looking at calves back down in the mid-$80s," Lawrence said. "Yearlings, low $80s. Feds, $75."

To put that in perspective, the 10 years that ended in 2002, the average was $68 for fed cattle.

"That suggests that maybe our low in this next cycle might be in the $70s," Lawrence said. "We're clearly in a new price plateau, I think, in the cattle market."

But he admitted that he has a friend who maintained that corn moved to a new price plateau in 1996.

"It hit $5," Lawrence said. "It wasn't ever going back to two. As they unloaded their $1.40 corn last November, I reminded him of that."

The key difference in this cycle, Lawrence said, is that demand is now increasing, where in the last two cycles as supply increased, demand was falling.

"If we ramp up the numbers," Lawrence said, "and I think we will, we'll be selling into a growing market. I think that will dampen the down side."

He said the market started out this year higher than in 2005. Then prices for calves, yearlings and fed cattle dropped lower through the spring.

"We hit bottom about the time we went into June, and that's about where we are today," Lawrence said.

While fed cattle, calves and yearlings looked similar at the first of the year, the drop-off was much sooner than expected, he said.

Lawrence said the seasonal high usually comes around tax day and the seasonal low comes around the time of the Iowa State Fair.

"In Iowa," he said, "the state fair is in August."

The last week of July, cattle traded under $80.

"I think we've got a couple of dollars down left before we get into the fall and the spring," Lawrence said.

For now, the low of the year so far was in May.

"I think we'll go back and take that out," Lawrence said. "We tend to rally heading into Labor Day and beyond. I think that's going to happen this year as well."

The Choice-Select spread is running much wider than normal, he noted.

Typically, in a fairly predictable pattern, it starts pretty low in the spring. It will usually rally around Memorial Day, he said, and it will come off in the summer and rally again in October.

"This year's making a liar out of us," Lawrence said.

This year, it followed the typical pattern when it went up, but it has stayed up through much of the summer. It didn't start back down until late July.

"Everything revolves around supply and demand," Lawrence said. "The supply for Choice product has been tighter this year."

The problem has been with the percentage of the kill grading Choice.

"We were running lower this year and it dropped off in May and June and it has dropped considerably lower before picking back up," Lawrence said. "The shortage, even though we're feeding cattle to heavier weights, we've gone more days on feed, cattle are not grading as well. "

There's been some talk that it has to do with distiller's grain.

"I'm not a nutritionist," Lawrence said, "and I've not seen all the research."

He said they've been feeding distiller's grain in Iowa and eastern Nebraska for about 30 years.

"We're feeding a little bit more this year," Lawrence said. "I know they're feeding more in Kansas and other places. I don't think that would cause this kind of a shift in any one year."

He thinks it is a variety of factors.

"Certainly this year, grading has been off," Lawrence said.

While ranchers have done relatively well, cattle feeders have seen a lot of red ink.

"Cattle feeding is an exciting business, to say the least," Lawrence quipped.

Every cattle feeder remembers 2003, he said.

"The second week of October 2003, $118 live on cattle," Lawrence said. "I've talked to cattle feeders who have a closeout profit of $600 a head. They have it framed and sitting on their mantle right now. It is a collector's item."

That encouraged them to go ahead and continue feeding cattle.

"They have now rebated that," Lawrence said.

Feedyards can only stand a certain amount of loss before they start backing off on calf prices.

"I think that is one of the risks in August," Lawrence said.

Even though everyone is pretty optimistic, eventually calf prices will drop, and Lawrence thinks that's the risk for the feeder market.

Cattle slaughter through mid-July was up about four percent.

"Beef cow slaughter is up 11 percent," Lawrence said. "We're killing cows at a faster pace than last year."

Part of that has to do with the drouth, but cow slaughter was down last year.

"It was 2004-2005 we had the lowest cow slaughter since 1963," Lawrence said. "We're not building cow herds as fast as we might have thought."

Yet the expansion is continuing.

"The other thing to note," Lawrence said, "is that beef production is up six percent on four percent more slaughter. That's the heavier carcass weights."

Typically, the high weight for the year is in November, he said. The all-time record steer carcass high is about 844 pounds.

"We will probably set that this month," Lawrence said.

Cattle on feed were up 4.5 percent as of July 1.

Those numbers usually bottom out in August and September, then start back up.

Part of those numbers, he said, have to do with placements.

"The drouth has moved some cattle around," Lawrence noted.

January placements were up sharply. Placements were higher in January, February and March. They grew again in June.

"These probably would have come in July and August if there had been enough grass out there," he said.

About 2.5 percent more cattle were placed in the first half of the year. That means slaughter could be higher than normal in the second half of the year.

Part of that increase in placements came from heifers.

"We've had two years of increasing heifer numbers," Lawrence said, "and then it was flat. This year, we kept five million back in the herd."

The heifers tend to peak before the cattle do. They tend to bottom before the cattle do.

"I don't think we're ready to turn this back down to fewer cattle," Lawrence said.

He thinks ranchers will continue to try to grow the herd, but in some places there's just not enough grass to do it. As a result, the delay will postpone the bottom of the cycle and stretch it out a little farther.

"I think we're still going to try to expand numbers," Lawrence said. "If you look on the calf side of things, there are still plenty of cattle outside the feedlot that are not in the breeding herd and over 500 pounds.”

That doesn't count the calf crop, he added. Those numbers have been relatively flat these last few years.

"This year it's up slightly from a year ago," Lawrence said. "Even though we have more cattle on feed, there are a few more available, in part because of last year's larger calf crop and then fewer heifers being kept."

On the demand side, Lawrence said, exports have been up. During the first half of the year, they were up 78 percent.

"It's phenomenal growth," Lawrence said. "The only problem is we started near zero, so it's not a very big number yet, but it is coming back."

May was the largest export month since the export market closed.

"We're headed in the right direction on this thing," Lawrence opined.

He said he thinks exports to Japan and Korea will be slow in returning.

Lawrence was in Asia for two days during the spring at a food trade show with 49,000 people.

"I have five business cards," Lawrence said. "One from Japan, two from Korea, two from Hong Kong. It's going to take a while to get back in that market."

He said, however, that the domestic market has really picked up the slack from the export markets.

In the future, domestic demand will center around income. The things to watch are energy costs and how it cuts into disposable income.

"That impacts a lot of our consumers," Lawrence said. "It affects prices throughout the economy."

Interest rates, particularly on housing, are creeping up.

In the first quarter, the economy was on fire at over five percent growth. The projections are that the second quarter will still be strong.

“But this will be one of the factors to watch," Lawrence said.

The longterm forecast by the Food and Agricultural Policy Research Institute, a joint project by the University of Missouri and Iowa State, projects a low in 2011 or 2012.

"They do all the modeling for the Farm Bill analysis and Congressional action," Lawrence said. "Near term, I think calves and everything across the board will be a little lower this year than they were last year. I think it's still black ink for cowherds. I think 2007 will be a profitable year for cow herds as well."

The wild card will be corn prices, he said.

"Particularly with ethanol coming on, I think that's a risk factor on the cattle market," Lawrence said.

Government figures show drouth extending across the Southern Plains. The eastern Cornbelt, however, is normal.

Northwestern Iowa, a major cattle-feeding area, is dry. There is also a pocket in the southern part of the state that was dry last year. It's dry again this year.

“Overall," Lawrence said, "our corn crop is in pretty good shape in Iowa."

Range and pasture conditions are another matter.

Last year in July, 32 percent of the nation's cattle faced poor or very poor range conditions, but 56 percent enjoyed good pasture.

This July, 70 percent of cattle were on poor pasture and only 16 percent had good range conditions.

Drouth has caused some moving of cattle over the last five years, Lawrence said.

The Great Plains is down 450,000 head of cows. The western states are down about 160,000 head.

The Southern Plains is up about 172,000 head, Lawrence said. The Cornbelt is up 271,000 head.

Texas and Oklahoma are up 2.3 percent and the Cornbelt is up 5.7 percent.

"Overall, the nation's cow herd is down about a half a percent," Lawrence said. "As these cows find a new address, they don't necessarily move to slaughter."
 

HAY MAKER

Well-known member
Turkey Track Bar said:
Hi Hay Maker...thanks for posting. Glad to see you back!

Cheers---

TTB :wink:

Thanx TTB,I bout got my summer chores done,good thang too,as its bout 100 degrees every day around here,sure am ready for some cooler wetter weather..............good luck
 

Tap

Well-known member
Last year may average the top end on cattle prices, but this year we sold our calves on video, Oct. del., for the best price yet. I hope next year is better. :wink:
 
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