July 2005
Consumers
rejoice. More beef is coming to your supermarket and retail
prices may actually moderate soon. However, producers will
not be as pleased. Why more beef? The Canadian door has
been opened to live animals; there are more cattle in the
feedlot pipelines; and more heifers are being saved back
to increase the size of the brood cow herd.
Cattle markets are questioning how many cattle may come
from Canada now that the border has been opened? It will
likely take some time for flows to adjust, but prices have
been depressed in Canada and animals will quickly flow to
the U.S. unless additional constraints are placed on their
movement. As an example, at the start of July, Ontario finished
steers were about $9 per hundredweight lower than similar
cattle in the U.S. while Alberta steers were $16 lower.
Canadian and U.S. prices should equate with an open border
but with Canadian cattle being several dollars lower to
cover transportation costs to U.S. packers.
The year 2002 was the last full calendar year of live imports
from Canada and we imported 1.7 million head, approaching
five percent of U.S. slaughter. Since that time, the size
of the Canadian calf crop has increased by 300,000 head,
but their slaughter capacity grew by 900,000 head. So this
may mean that something close to a million head of cattle
could flow to the U.S. annually. This would increase U.S.
beef supplies about three percent.
Total U.S. cattle inventory numbers on June 1 were up about
one percent as well. The cattle herd continues to expand
with nearly one percent more beef and dairy cows in the
herd. And, even more growth appears to be on the way with
an increase of four percent in beef heifers being retained
to go back to the brood herd and three percent more dairy
heifers. Finally, on-feed numbers at the start of July were
up three percent.
These events mean that beef supplies could rise by seven
percent in the last-half of 2005 and be up by six to seven
percent in the first-half of 2006. Even though beef demand
has been solid in the past year, supply increases of this
magnitude will likely depress prices. Consumers are the
ones who may be happy as retail beef prices have been at
record high prices of $4.19 per pound so far this year.
Finished steer prices have currently dropped to about $79
and may have a few more dollars to go to reach their lows
by the end of the summer. Fall and winter prices should
recover into the lower $80s, and perhaps the mid-$80s by
early spring. Reduced price expectations for finished cattle
and higher feed prices will continue to put downward pressure
on feeder calf and calf prices this fall as well.
Some would say it looks like the party is over for high
cattle prices. In the last 12 months finished steers averaged
$86.44 per hundredweight. That number may be closer to the
high $70s in the next 12 months.
However, there remains one unresolved BSE issue that could
change these potentially lower prices, and that is the opportunity
to open beef export markets. In 2003, beef exports were
nearly 10 percent of our domestic production. While we would
not be able to initially regain all of our export business,
the clearest solution to our beef supply woes is to move
toward a resolution with the Japanese on BSE testing.
Prospects for settling these differences do not currently
look promising. But, lower cattle prices will mean that
the U.S. cattle industry will put increasing pressure on
USDA to accept testing protocols that will meet Japanese
standards. Opening world beef markets to our exports will
be the final leg of a long BSE journey. Unfortunately, we
cannot yet see when the last leg of the journey will be
completed.
Chris Hurt
Purdue University
July 25, 2005
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