February 2003
Cattle numbers continue to drop, but there are signs that
herd expansion may begin later this year. The beef cow herd
inventory moved lower in the January 2003 USDA Cattle report.
Now at 32.9 million head, the beef cow herd has dropped
7% since 1996. The current beef cow cycle is now 14 years
old with the previous low on beef cow numbers occurring
in 1989. This very long cycle will likely come to a close
later this year as producers have retained about 1% more
heifers for replacements, with the number of replacements
that will calve in 2003 up 3%.
The number of beef cows was down modestly by .5%. In the
Eastern Corn Belt numbers were down 1% led by declines in
Illinois (down 19,000 cows); and Ohio (down 20,000 cows).
Indiana, Wisconsin, and Michigan each had some increase
in beef cow numbers. Around the country, small increases
in cow numbers occurred in the Western Corn Belt, the Southern
Plains, and the Southeast, all other regions had decreases.
The Northern and Central Plains as well as the western U.S.
all had decreases due to the pervasive drought that limited
pastures and forage supplies in 2002. Current drought indicators
show no signs of improvement in most of those regions.
For the milk herd, cow numbers were up slightly by .4%.
Unfortunately, there is still no sign that producers are
adjusting cow numbers downward in response to the dismal
milk prices in 2002, which were the lowest since 1980. In
addition to a slightly higher number of cows in production,
heifers being retained for breeding stock were up 1%. The
continuation of higher milk cow numbers is a discouraging
sign of the potential for even larger milk supplies this
year.
With declining beef cow numbers and increasing milk cow
numbers, the total number of cows is only down a modest
.3%. Consequently the final 2002 calf crop was down only
.2%.
Cattle on-feed numbers were down 8% as of the beginning
of the year. While placements in both November and December
were starting to move back upward, the number of market
ready cattle coming out of feedlots will be small in coming
months. Carcass weights in 2002 were up 2.8%, and accounted
for most of the 3.8% increase in total beef production for
the year.
So far this year, beef supplies have been down nearly 3%
providing the primary reason for finished cattle price strength.
First-half supplies will be drawn from the number of steers
over 500 pounds which were down 1.2% and heifers over 500
pounds not headed back for replacements which were down
1.7%. Second-half supplies will be drawn from the number
of calves under 500 pounds on January 1 which were down
1.3%. Beef supplies for the rest of the year will also be
influenced by marketing weights, by weather and drought
conditions, and thus the rate of cow slaughter.
Cold weather limited gains this winter and resulted in
some delays of cattle coming out of feedlots, contributing
to the drop of 3% in January beef production. In the last-half
of the winter, there will be some “catching-up”
of marketings which will contribute to larger supplies.
For the first quarter, beef production may be down about
1%, and off 2% in the second quarter. Greater heifer retention
could begin to accelerate in the second-half of the year,
and dropping cow slaughter will also reduce total beef supplies,
perhaps as much as 3% to 4%.
Choice cattle prices are expected to dim somewhat in the
next few weeks as slaughter supplies increase from their
cold-weather delays. However, spring highs could still reach
new highs in the very low $80s in late March and early April.
The decline in summer prices is not expected to be as severe
as normally with prices dropping back into the lower $70s
by the end of the summer. Prices in the fall are expected
to move back upward into the mid-to-higher $70s.
Calf prices in the fall of 2003 are expected to recover
substantially compared to last fall. As an example, Oklahoma
City 500-550 pound steers averaged $88.38 last fall. If
finished cattle prices remain strong, and if feed prices
moderate with “normal” weather this summer,
calf prices could return to the very high $90 to low $100’s
per hundredweight.
The cattle market is trading at lofty levels which make
it even more vulnerable to uncertainties which include a
potential armed conflict and a still shaky recovery in the
general economy. In addition, continued drought in the Mountain
States as well as the Central and Northern Plains could
keep cow slaughter much heavier than anticipated, and reduce
the number of heifers retained for replacements.
Chris Hurt
Purdue University
February 3, 2003
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