Livestock Outlook

K-State Research & ExtensionK-State Research & Extension

Livestock OutlookLivestock Outlook

James Mintert, Ph.D.James Mintert, Ph.D.Professor & Extension State Leader Professor & Extension State Leader

Department of Agricultural EconomicsDepartment of Agricultural EconomicsKansas State UniversityKansas State University

www.agmanager.info/livestock/marketingwww.agmanager.info/livestock/marketing

[email protected]@ksu.edu

mailto:[email protected]


U.S. Cattle InventoryJ anuary 1, 1975-2006

50

60

70

80

90

100

110

120

130

140

75 80 85 90 95 00 05Year

Million

Head

Source: USDA & K-State Research & ExtensionKSU Dept. of Ag Econwww.agmanager.info

A Shrinking IndustryA Shrinking IndustryResponding to a Lack of Profitability Responding to a Lack of Profitability

Current inventory is about 26% Current inventory is about 26% smaller than in 1975smaller than in 1975


Rising Productivity Is Partially ResponsibleRising Productivity Is Partially Responsible

Dressed Beef Production . Per Cow Per Year .

200

250

300

350

400

450

500

550

600

650

700

50 55 60 65 70 75 80 85 90 95 00 05 10

Year

Po

un

ds

Beef Production Per Cow

30 Year Trend

Source: USDA & K-State Research & Extension .


But Weaker Demand Was Key But Weaker Demand Was Key Beef Demand 1980-1998Beef Demand 1980-1998

Annual Retail Choice Beef Demand Index

88 86 8379 76

70 6966 65 62 59 58 56 55 53 51

94

50

0

10

20

30

40

50

60

70

80

90

100

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98Year

Ind

ex V

alu

e

Source: USDA, Dept. of Commerce & K- State Research & Extension Price Deflated By CPI, 1980 =100 for Beef Demand Index

KSU Dept. of Ag. Econ. www.agmanager.info



52 54 56 5559

63

50

0

10

20

30

40

50

60

70

80

90

100

98 99 00 01 02 03 04Year

Inde

x V

alue



Measuring Changes In Beef DemandMeasuring Changes In Beef Demand1998-20041998-2004

Demand in ’04 Was Up About 25% from 1998 Level


Measuring Changes In Beef DemandMeasuring Changes In Beef Demand1998-20051998-2005


52 54 56 5559

63 61

50

0

10

20

30

40

50

60

70

80

90

100

98 99 00 01 02 03 04 05Year

Ind

ex V

alu

e



Beef Demand During All of ’05 Decreased About 4%But Demand in ’05 Was Still Up About 21% from 1998 Level


11stst Quarter Demand Index Fell Quarter Demand Index Fell About 5% Below A Year AgoAbout 5% Below A Year Ago

Retail Choice Beef Demand Index J anuary - March Quarter

94

83 83 8276

7267 67

63 61 60 58 56 54 53 5348 48 48 50 52 52 53

59 58 56

0

10

20

30

40

50

60

70

80

90

100

81 83 85 87 89 91 93 95 97 99 01 03 05Year

Ind

ex

Val

ue

Source: USDA, Dept. of Commerce & K-State Research & Extension Price Deflated By CPI, 1980 =100 for Beef Demand Index

KSU Dept. of Ag. Econ.www.agmanager.info


22ndnd Quarter Demand Index Fell Quarter Demand Index Fell About 10% Below A Year AgoAbout 10% Below A Year Ago

Retail Choice Beef Demand Index April-J une Quarter

93 90 9086 85

82

74 7470 70 68

64 61 59 58 57 54 53 55 5760 60 62

67 6760

0

10

20

30

40

50

60

70

80

90

100

81 83 85 87 89 91 93 95 97 99 01 03 05Year

Ind

ex V

alu

e

Source: USDA, Dept. of Commerce & K-State Research & Extension Price Deflated By CPI, 1980 =100 for Beef Demand Index

KSU Dept. of Ag. Econ.www.agmanager.info


Where Are We Headed?Where Are We Headed?

Beef DemandBeef Demand

• Short run gains from low-carb diets behind usShort run gains from low-carb diets behind us

• Near term, look for weaker domestic demandNear term, look for weaker domestic demand

• To stop the decline industry needs to innovate To stop the decline industry needs to innovate

• Opportunities abound for innovatorsOpportunities abound for innovators


International Trade Outlook International Trade Outlook


Net Exports of U.S. Cattle, Beef, & By-Products1979-2005

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

79 81 83 85 87 89 91 93 95 97 99 01 03 05

Year

Bil

lio

n $

Source: U.S. Dept. of Commerce & LMIC Net Exports = Exports - Imports

U.S. Has Been A Net Exporter Since 1981U.S. Has Been A Net Exporter Since 1981


Top 5 Importers Top 5 Importers Accounted for 91% of U.S. ExportsAccounted for 91% of U.S. Exports

Top 10 Importers of U.S. BeefRanked by Value of Imports in 2003

Other Category Consists of All Other Destinations

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

Japan Mexico S. Korea Canada HongKong

Taiwan Russia China Kuwait Egypt Other

Destination

Va

lue

(T

ho

us

an

d $

)

.

.

Source: USDA-FAS .

U.S. needs to U.S. needs to recapture these recapture these markets to regain markets to regain $’s and volume$’s and volume


Annual Cattle Imports From Canada .

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06

Year

Millio

n H

ea

d .

Source: USDA & LMIC, 2006 Projected

Cattle Imports from Canada Are IncreasingCattle Imports from Canada Are Increasing But Remain Well Below 2002’s Record LevelBut Remain Well Below 2002’s Record Level

Jan-June 2006 imports Jan-June 2006 imports 28% below 2002’s and 28% below 2002’s and 15% below 2001’s15% below 2001’s


Beef Imports From Canada DeclineBeef Imports From Canada Decline

Annual Beef Imports From Canada .

0.0

0.2

0.4

0.6

0.8

1.0

1.2

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

Year

Billio

n P

ou

nd

s .



Result: U.S. Imports Falling Below 2005’sResult: U.S. Imports Falling Below 2005’s

Annual U.S. Beef Imports From All Sources .

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

Year

Billio

n P

ou

nd

s .



Where Are We Headed?Where Are We Headed?

TradeTrade

• U.S. strength is in high quality beef productsU.S. strength is in high quality beef products

• Regaining export markets could take yearsRegaining export markets could take years

• Consumer incomes in importing countries Consumer incomes in importing countries are key to long-run growth in exportsare key to long-run growth in exports

• Other countries may have comparative Other countries may have comparative advantage in cow-calf productionadvantage in cow-calf production


Long, Slow Road to Export RecoveryLong, Slow Road to Export Recovery

Annual U.S. Beef Exports

0.0

0.5

1.0

1.5

2.0

2.5

3.0

80 82 84 86 88 90 92 94 96 98 00 02 04 06

Year

Bil

lio

n L

bs.

Source: USDA & LMIC, 2006-2007 Forecasts


Export Recovery Means Net Beef Export Recovery Means Net Beef Imports in 2007 Could Be 1/2 2004’sImports in 2007 Could Be 1/2 2004’s

Annual U.S. Net Beef Imports

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

80 82 84 86 88 90 92 94 96 98 00 02 04 06

Year

Bil

lio

n L

bs.

Source: USDA & LMIC, 2006-2007 Forecasts


Supply Side in the U.S. Supply Side in the U.S.


Mid-Year Inventory Was Above 2005’s, And…Mid-Year Inventory Was Above 2005’s, And…

U.S. All Cattle & Calves Inventory J uly 1 Inventory

100

105

110

115

120

125

130

135

140

145

73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05Year

Mill

ion

Hea

d

Source: USDA & LMI C

J uly 1 Inventory = 105.7 Million Head 1.1% Above J uly 1, 2005 Inventory & 6.5% Below J uly 1, 1995 Inventory


Strong Profitability Encouraging Expansion, But…Strong Profitability Encouraging Expansion, But…

Estimated Kansas Cow-Calf Returns .

-100

-50

0

50

100

150

200

250

300

75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05

Year

$'s

Per

Co

w

.

Source: KS State Farm Mgmt. Assoc. Returns Above Variable Costs


US RANGE AND PASTURE CONDITIONPercent Poor and Very Poor, Weekly

0

10

20

30

40

50

60

May Jul Sep

Percent

Avg.2000-042005

2006

Livestock Marketing Information Center

Data Source: USDA/NASS

Poor Pasture Conditions Poor Pasture Conditions Could Be Holding Back ExpansionCould Be Holding Back Expansion


U.S. Beef Cow Slaughter Up 13% vs. 2005 U.S. Beef Cow Slaughter Up 13% vs. 2005

Weekly F.I . Beef Cow Slaughter

30

35

40

45

50

55

60

65

70

75

01/07 02/25 04/15 06/03 07/22 09/09 10/28 12/16

Week Ending

Th

ou

san

d H

ead

2005 2006 5 Yr Avg

Source: USDA & K-State Research & Extension

KSU Dept. of Ag Econwww.agmanager.info


But Female Slaughter Still LowBut Female Slaughter Still Low

Cow & Heifer Slaughter as a % of Steer Slaughter

70

80

90

100

110

120

130

50 55 60 65 70 75 80 85 90 95 00 05

Year .

Fe

ma

le S

ltr.

% o

f S

tee

rs

.

Female % of Steer Slaughter



Through July, Through July, Still Looks Like Modest Expansion UnderwayStill Looks Like Modest Expansion Underway

Cow & Heifer Slaughter vs. Cattle Herd Growth Rate .

70

80

90

100

110

120

130

50 55 60 65 70 75 80 85 90 95 00 05

Year .

Fe

ma

le S

ltr.

% o

f S

tee

rs

.

-6%

-4%

-2%

0%

2%

4%

6%

He

rd G

row

th R

ate

.

Female % of Steer SlaughterHerd Growth Rate



Slaughter Is Expected To RiseSlaughter Is Expected To Rise

Annual U.S. Commercial Cattle Slaughter

3132333435363738394041424344

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06

Million

Head

Source: USDA & K-State Research & Extension LMIC Forecasts for 2006 & 2007

Year


Large On Feed InventoryLarge On Feed Inventory

U.S. Cattle On Feed Lots Over 1000 Head

9.50

9.75

10.00

10.25

10.50

10.75

11.00

11.25

11.50

11.75

12.00

12.25

J an Feb Mar Apr May J un J ul Aug Sep Oct Nov DecMonth

Million

Head

.

2006

2005

5 Yr. Avg.



Drought Pushing Light Weight Placements UpDrought Pushing Light Weight Placements Up

U.S. Net Placements Lots Over 1000 Head

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00

J an Feb Mar Apr May J un J ul Aug Sep Oct Nov DecMonth

Million

Head

. 2006

2005

5 Yr. Avg.



Weights Will Remain HeavyWeights Will Remain Heavy

Commercial Cattle Carcass Weights .

550

575

600

625

650

675

700

725

750

775

800

70 75 80 85 90 95 00 05

Year

Dre

ssed

Wt.

/H

ead

(Lb

s.)

.

Trend

Source: USDA, LMI C, & KSU


And Beef Production Will Rise CyclicallyAnd Beef Production Will Rise Cyclically

Commercial Beef Production

20

21

22

23

24

25

26

27

28

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06

Year

Bill

ion

Pou

nd

s

Source: USDA & K-State Research & Extension LMIC Forecasts for 2006 & 2007


Summer Lows Are Behind UsSummer Lows Are Behind Us

Kansas Direct Slaughter Steers Weekly Weighted Average Live Weight Prices

65

70

75

80

85

90

95

100

01/06 02/17 03/31 05/12 06/23 08/04 09/15 10/27 12/08

Week Ending Date

Pri

ce (

$/c

wt.

)

200520065 Yr Avg

Source: AMS-USDA, Dodge City, KS &K-State Research & Extension



Futures Are Pretty Optimistic For FallFutures Are Pretty Optimistic For Fall

Mid-Month Futures Based Price Forecasts Kansas Slaughter Steers

80

82

84

86

88

90

92

94

96

98

Sep '06 Oct.'06

Nov.'06

Dec.'06

J an.'07

Feb.'07

Mar.'07

Apr.'07

May'07

J un.'07

Date

Pri

ce (

$/c

wt.

)

3 Yr. Avg. Basis Most Neg. Basis Most Pos. Basis

Source: CME & K-State Research & ExtensionForecasts =8/11/06 Futures Price + Basis Estimates



Prices Could Wind Up Record High Again in ‘06Prices Could Wind Up Record High Again in ‘06

Kansas Direct Slaughter Steer Prices .

60

65

70

75

80

85

90

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

Year

Pri

ce

($

/cw

t.)

Source: AMS-USDA, Dodge City, KS, 2006 projected based upon CME Futures, 8.11.06


Despite Feedlot Losses, Feeders Remain OptimisticDespite Feedlot Losses, Feeders Remain Optimistic

Monthly Iowa Yearling Finishing Steer Returns $'s Per Head

-200

-100

0

100

200

300

400

500

1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005Date

$'s

/Head

Source: Iowa State University KSU Dept. of Ag Econwww.agmanager.info


Where Are Corn Prices Headed?Where Are Corn Prices Headed?Higher Corn Prices Spell Trouble for Livestock ProducersHigher Corn Prices Spell Trouble for Livestock Producers

Kansas Monthly Corn Prices

1.251.501.752.002.252.502.753.003.253.503.754.004.254.504.755.00

75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05

Year

Co

rn P

rice

($/

bu

.)

Source: USDA-Kansas Agricultural Statistics & K-State Research & Extension

1985-1989 Average = $2.23/bu.1990-1994 Average = $2.40/bu. 1995-1999 Average = $2.65/bu.2000-2004 Average = $2.23/bu.2004 Average=$2.59/bu.2005 Average=$2.02/bu.

Ethanol?Ethanol?


Cattle Feeders Have Pushed Prices Back UpCattle Feeders Have Pushed Prices Back Up

Kansas Combined Auction (Dodge City, Pratt, Salina) Weekly Weighted Average 700-800 Lb. Steer Prices

80

85

90

95

100

105

110

115

120

125

01/06 02/17 03/31 05/12 06/23 08/04 09/15 10/27 12/08Week Ending Date

Pri

ce (

$/c

wt.

)

2005

2006

5 Yr Avg

Source: AMS-USDA, Dodge City, KS &

KSU Dept. of Ag Econ


Feeders In ‘05 Averaged A Record High of $112/cwt.Feeders In ‘05 Averaged A Record High of $112/cwt.Prices in ’06 Could Wind Up Near ’05’s AveragePrices in ’06 Could Wind Up Near ’05’s Average

Dodge City, KS 700-800 Lb. Steer Prices .

60

65

70

75

80

85

90

95

100

105

110

115

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

Year

Pri

ce (

$/c

wt.

)

Source: AMS-USDA, Dodge City, KS & KSU, 2006 forecast based upon CME futures 8.11.06


Counter-Seasonal Price Path in Spring ‘06Counter-Seasonal Price Path in Spring ‘06

Kansas Combined Auction (Dodge City, Pratt, & Salina) Weekly Weighted Average 500-600 Lb. Steer Prices

95

100

105

110

115

120

125

130

135

140

145

01/06 02/17 03/31 05/12 06/23 08/04 09/15 10/27 12/08

Week Ending Date

Pri

ce (

$/c

wt.

)

2005 2006 5 Yr Avg

Source: AMS-USDA, Dodge City, KS &K-State Research & Extension



Record High Calf Prices Again In ‘05Record High Calf Prices Again In ‘05Cycle Peak in ’05 & ‘06Cycle Peak in ’05 & ‘06

Dodge City, KS 500-600 Lb. Steer Prices .

6065707580859095

100105110115120125130135

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

Year

Pri

ce

($

/cw

t.)

Source: AMS-USDA, Dodge City, KS & KSU, 2006 Forecast .


What About 2007?What About 2007?

Slaughter cattle prices in high $80’s during Q1 & Q2 ‘07Slaughter cattle prices in high $80’s during Q1 & Q2 ‘07

Feeder prices averaging about $110 - $112/cwtFeeder prices averaging about $110 - $112/cwt


Iowa Farrow to Finish Profits,Iowa Farrow to Finish Profits,1965-20051965-2005

-30

-20

-10

0

10

20

30

40

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05

$ Per Head

Source: John Lawrence, Iowa State University

1965-74: $10.04/head profit 1975-84: $14.22/head profit 1985-94: $10.51/head profit 1995-04: $ 0.52/head loss


Iowa Farrow to Finish Profits, 1994-2006Iowa Farrow to Finish Profits, 1994-2006Iowa State University Calculations

-70

-50

-30

-10

10

30

50

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

$ Per Head

Source: John Lawrence, Iowa State University

29 consecutive months of profit, longest since 33 months in 1976-79


Surprisingly Slow Growth in SlaughterSurprisingly Slow Growth in Slaughter

Commercial Hog Slaughter

65

70

75

80

85

90

95

100

105

110

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06

Year

Mill

ion H

ead

.

Source: USDA, 2006 & 2007 LMIC Forecasts


Pork Production Expected To Rise Next Several YearsPork Production Expected To Rise Next Several Years

Annual U.S. Commercial Pork Production .

11

13

15

17

19

21

23

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06

Year

Billio

n P

ou

nd

s

Source: USDA, 1999 KSU Forecast

Source: USDA, 2006 & 2007 LMIC Forecasts


Export Growth Has Been PhenomenalExport Growth Has Been Phenomenal

Annual U.S. Pork Carcass Imports & Exports .

0.0

0.5

1.0

1.5

2.0

2.5

3.0

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Year

Exports

Imports

Source: USDA


National Weighted Avg. Hog PricesNational Weighted Avg. Hog PricesNegotiated Base Price Per Negotiated Base Price Per CarcassCarcass Hundredweight Hundredweight

2005*2005* 20062006 20072007

Qtr 1Qtr 1 $67.15$67.15 $56.39$56.39 $57-61$57-61

Qtr 2Qtr 2 $68.18$68.18 $63.47$63.47 $60-64$60-64

Qtr 3Qtr 3 $66.20$66.20 $62-64$62-64

Qtr 4Qtr 4 $59.83$59.83 $57-60$57-60

YearYear $66.96$66.96 $58-61$58-61 $54-58$54-58

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Livestock Outlook

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