US Beef and Dairy Cattle Outlook Report - February 2007

By U.S.D.A., Economic Research Service - This article is an extract from the February 2007: Livestock, Dairy and Poultry Outlook Report, highlighting Global Cattle Industry data.
calendar icon 21 February 2007
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USDA Economic Research Service

Cattle/Beef: On February 2, USDA’s National Agricultural Statistics Service released its January 1, 2006, estimates of cattle and calf inventories in its semiannual Cattle report. The report included some significant revisions of January 1, 2006, inventories, and calf crops for 2005 and 2006 were also revised downward.

Record numbers for the series beginning in 1996 of January 1 cattle on feed on 1,000-plus feedlots (Cattle on Feed report released on January 26, 2007), highest feeder cattle supplies outside feedlots since 2003, and heaviest second-half-year commercial cow slaughter since 2003 were all based on smaller total cow inventories and calf crops than previously thought. Higher corn prices are expected to prevail in 2007, exerting downward pressure on feeder cattle prices. Snowstorms and cold weather in the Plains continue to deplete cow-calf producers’ hay stocks and hamper growth of feedlot cattle.

Beef and CattleTrade: Cattle imports totaled 2.289 million head in 2006, up 26 percent from 2005, reflecting the first full calendar year of cattle imports from Canada since 2002. Beef imports in the fourth quarter totaled 722 million pounds, down 9 percent from the same period in 2005. Total 2006 beef imports were down 14 percent from 2005, reflecting high U.S. domestic cow slaughter in response to drought conditions, shifting export patterns among major South American exporters, and displacement of Canadian beef imports by Canadian cattle imports. U.S. beef exports totaled 1.153 billion pounds in 2006, up 65 percent from 2005, driven mainly by record exports to Mexico of 668 million pounds.

Dairy: Despite slightly lower cow numbers, increased productivity is expected to boost milk production in 2007 to 184.3 billion pounds. However, buoyant demand, both foreign and domestic, will lead to sharply higher prices for milk and dairy products in 2007 compared with 2006.

Cattle/Beef

Weather and Forage Supplies Will Impact Cattle Movements

Despite the improving soil moisture prospects, a positive aspect of recent snowstorms, cow-calf producers still face 2 months of declining hay stocks and rising hay prices before pastures begin to grow for the 2007 grazing season. If grazing conditions improve, the ongoing decline in the number of beef cow operations is likely to slow. The number of operations was down by 1 percent from 2005 (Farms, Land in Farms, and Livestock Operations: 2006 Summary). The number of larger operations increased, while smaller operation numbers continued to decline.

Feedlot demand for lighter weight feeder cattle is also declining because of rising corn price prospects for 2007, largely due to demand for corn for ethanol production. As a result, feeder cattle prices are under pressure, with the lighter 600- 650-pound feeder calf prices (Oklahoma City January average) declining by 15 percent since December versus a 12-percent decline for heavier 750-800-pound feeder steers. January average prices for both groups were down 7 percent from January 2006 prices.

Beef Production Base Declines

Percentage changes in cattle inventory numbers from revised January 1, 2006, inventories were modest, with the largest changes being in milk cow replacement heifers expected to calve (down 2 percent), bulls 500 pounds and over (down 2 percent), and steers 500 pounds and over (up 2 percent). In 2007, calves, other heifers, and steers on small-grain pasture were up by 24 percent over January 1, 2006, inventories. The relatively poor winter wheat grazing conditions suggest that many of these cattle are being supplemented and maintained on the small-grain pasture until conditions improve. The inventory on small-grain pasture is still 16 percent below the 3.1-million-head inventory of January 1, 2005.

However, these modest changes mask the fact that several of the 2006 inventory numbers were significantly revised, giving a different base from which to view all that happened in the cattle/beef industries in 2006. Generally, the 2006 dairy sector inventories were increased modestly, mature beef sector inventories were reduced, and stocker/feeder/fed sector inventories were increased. Total cattle and calf inventories for 2006 were reduced by 99,000 head. Noteworthy changes included total cows reduced by 288,000 head (beef cows were reduced by 359,000 head, while dairy cows increased by 71,000 head), and inventories of heifers 500 pounds and over were increased by 108,000 head (decreases for beef replacement heifers, increases for dairy replacements, and an increase in other heifers over 500 pounds of 104,000 head).

Feeder Cattle Supplies Rise

Feeder cattle supplies outside feedlots and available to go on feed or into spring/summer grazing programs were up 1 percent from a year ago. Other heifers 500 pounds and over are generally destined for feedlots sometime during 2007. Steers 500 pounds and over, also destined for feeding mostly in 2007, were up by 299,000 head, and cattle already on feed were adjusted upward by 137,000 head. These adjustments in feeder/fed cattle inventories suggest an adjustment in potential fed cattle marketings for 2007 on the order of a half-million head more than previously anticipated.

Higher prices for corn and other grains due to ethanol production will increase incentives to keep calves on pasture until they reach heavier weights. This will spread out placements into feedlots compared with placements last year, when drought forced more calves into feedlots. Feeding losses on cattle marketed in January 2007 were among the largest since May 2006. However, the downward revisions in the 2006 calf crop and downward adjustment in total cow inventories could be signaling a significant decline in cattle feeding in 2008, and—because of the 2-year period between breeding replacement heifers and harvesting beef—it will be 2009 or later before any beef is harvested from replacement heifers retained from this year’s calf crop. Beef production in 2008 will depend on grazing conditions and the number of heifers retained for breeding. In addition, higher feed prices will impact placement weights and dressed slaughter weights. All of these adjustments will exert downward pressure on feeder cattle prices, suggesting that more cattle could be fed in 2007.

An interesting question for the future that arises with the recently proposed increases in goals for ethanol production relates to pasture and cropland acreage dynamics: As switchgrass or other grass/forage-based ethanol production technologies increase, will competition increase, not only for grain for livestock feeding, but also for the pasture/forage base to maintain the ruminant livestock herd?

Commercial cow slaughter for 2006 was 12.9 percent of the revised January 1, 2006, total cow inventory. While 2006 commercial cow slaughter was the largest in the last 3 years, both commercial cow slaughter and slaughter percentage of January 1 cow inventories were higher in 2003 and before, except for 2000. Calf slaughter is a third higher than for this time last year. This, combined with cow slaughter ahead of last year, suggests that cow-calf pairs are being sold and separated and further evidence of the tight pasture and forage conditions.

December 2006 retail Choice beef prices averaged $3.92 a pound down by 1 percent from November, 2006 and by 4 percent from December 2005. While declining slightly from November 2006, December 2006 wholesale-to-retail spreads widened over December 2005 spreads. Farm-to-wholesale spreads widened by 4 percent over November 2006 spreads and by 12 percent over year-earlier spreads. Recent declines in boxed beef prices will make beef a more attractive feature item.

Beef Trade

U.S. Cattle Imports Up in 2006, Small Decline Expected in 2007

U.S. cattle imports totaled 2,289,000 head in 2006, based on December trade data recently released by the U.S. Commerce Department. Mexico remained the largest source of imported cattle to the United States, sending 1,257,000 head last year, virtually even with its 2005 total. The United States imports almost entirely lightweight stocker-feeder calves from Mexico, but the decline in calf prices in late 2006 in response to rising corn prices did not significantly dampen imports of Mexican calves. In the short run, their supply appears to be quite inelastic, as the U.S. market remains the best outlet for those animals already on hand. Weekly reports from the Agricultural Marketing Service (AMS), USDA, indicate imports from Mexico so far in 2007 are down significantly, but this appears to be related to poor weather and related conditions in the United States, and the cattle are expected to come north when conditions improve.

U.S. cattle imports from Canada totaled 1,032,000 head in 2006, marking the first full calendar year of imports from Canada since 2002. Imports were suspended in May 2003 following the discovery of the first Canadian BSE (bovine spongiform encephalopathy) case, and imports of Canadian feeder cattle and slaughter steers and heifers resumed in July 2005. The July-December total for 2006 was 504,000 head, down about 10 percent from the same period in 2005.

In early January 2007, USDA’s Animal and Plant Health Inspection Service (APHIS) announced a proposal to expand the list of allowable imports from countries presenting a minimal risk of introducing BSE into the United States. Canada is currently the only minimal-risk country designated by the United States. Among the products allowed under this rule are live cattle for any use born after March 1, 1999. More details are available from APHIS at http://www.aphis.usda.gov/newsroom/hot_issues/bse/index.shtml. Comments on this proposed rule will be accepted through March 12, 2007. A period of review will follow the comment period, and imports will not resume until the final rule is published and implemented.

Cull cows for slaughter were a significant category of imports from Canada prior to May 2003, representing about 30 percent of all Canadian cattle destined for immediate slaughter in the United States. The Canadian cow inventory grew significantly in the months immediately following the border closure, and this backlog continues to be worked down. On January 1, 2007, producers in Canada were holding 633,000 cull cows, down from 690,000 head on July 1, 2006, and 704,000 head on January 1, 2006. Canadian non-fed slaughter in federally inspected plants (mostly cull cows) in 2000-04 averaged 450,000 head per year but reached 592,000 head in 2005 and 721,000 head in 2006, according to Canadian Government statistics. Canadian packers do not have to bid against their American counterparts for cull animals, and the margins on slaughtering these animals remain attractive. Benchmark cow prices in Ontario averaged in the low US$30s in early February, well below the utility cow price in Sioux Falls of $52. Non-fed slaughter in Canada has remained high in early 2007.

U.S. cattle imports for 2007 are forecast at 2,200,000. This total is down 4 percent from 2006, reflecting weaker U.S. feeder cattle prices and a slightly smaller Canadian herd. The 2007 forecast total does not include prospective imports of Canadian cattle over 30 months of age; these animals will be included only when the proposed rule is actually implemented.

Total U.S. cattle exports were 49,000 head in 2006. Canada was the destination of the vast majority–about 37,000 head–of these animals. The 2007 export forecast is 60,000 head.

High U.S. Cow Slaughter and Shifting Trade Patterns Send Beef Imports Lower in 2006

U.S. beef imports in the fourth quarter of 2006 totaled 722 million pounds, down 9 percent from the same period in 2005. U.S. beef imports for all of 2006 were 3.085 billion pounds, down 14 percent from the 2005 total. The biggest event influencing U.S. beef imports in 2006 was the hot, dry weather across several regions of the United States which produced poor grazing conditions and lowered hay production, resulting in significant cow culling. Domestic lean beef production was consequently higher and lean beef prices were relatively lower, starting in the early summer and continuing through nearly the rest of the year. Commercial cow slaughter for 2006 was estimated at 5.427 million head, up almost 12 percent from 2005. The recent Cattle report indicated the U.S. beef cow herd numbered slightly less on January 1, 2007, than it did a year earlier, contrary to the expansionary phase of the cattle cycle that might have been expected.

Another factor reducing U.S. beef imports in 2006 was the decline in shipments from Uruguay starting last spring. Uruguay began exporting to markets previously serviced by Brazil and Argentina, including Russia, Chile, the E.U., and numerous smaller markets, when Brazil was hampered by an outbreak of foot-and-mouth disease (FMD) and exports from Argentina were limited by Argentine government policy aiming to keep domestic beef prices low. U.S. imports of Uruguayan beef fell to 305 million pounds in 2006, down 46 percent from 2005. However, Brazil and Argentina are expanding once more into their previous markets, and U.S. beef imports from Uruguay rebounded from a low of 45 million pounds in the third quarter to 64 million pounds in the fourth quarter of 2006.

U.S. beef imports from Canada also declined noticeably from 2005 to 2006, reflecting the fact that 2006 reflected a complete year in which cattle could also be imported from Canada. These cattle imports displaced some of the beef imports seen prior to the resumption of cattle imports in July 2005. Total beef imports from Canada were 844 million pounds in 2006, down 23 percent from 2005. Also, imports from Australia and New Zealand fell, as those countries continue to concentrate on Asian markets where the United States and Canada were formerly major suppliers.

Forecasted beef imports for 2007, totaling 3.28 billion pounds, were left unchanged this month. This 6 percent increase over 2006 reflects an assumption of returning to more normal weather conditions and relatively lower U.S. cow slaughter. Imports from Uruguay are also expected to bounce back somewhat from their level seen in 2006.

Shipments to Mexico Drive U.S. Beef Exports in 2006

U.S. beef exports in the fourth quarter totaled 308 million pounds, bringing the 2006 export total to 1.153 billion pounds. This marks a 65-percent increase over 2005, although it is only 46 percent of the record set in 2003.

One highlight for exports in 2006 was the record level going to Mexico. Exports to Mexico reached 668 million pounds, easily surpassing the 2002 record of 629 million pounds. A strong Mexican economy, buoyed by high prices for oil exports, appeared to support this buying. Exports to Canada also bounced back, reaching 238 million pounds, more than doubling the 2005 export level. A weak U.S. dollar vis-à-vis the Canadian dollar was an important factor over the last three quarters of 2006.

U.S. exports to Japan were interrupted in January 2006 with the discovery of prohibited material (a vertebral column in a veal rack), and exports did not resume in earnest until August. Total exports to Japan reached only 52 million pounds in 2006 (the United States had frequently exported over 900 million pounds to Japan prior to 2004). Japanese consumer acceptance of U.S. beef seems to be rebounding, and high domestic beef prices there make imports attractive. However, Australia and New Zealand continue to be strong competitors there, and the relatively limited number of age-verified cattle in the United States appears to be a constraint here (Japan will currently only accept beef from animals 20 months of age or younger).

Significant U.S. exports to South Korea have yet to resume after three initial shipments in late 2006 were rejected by Korean inspectors for containing small bone fragments. South Korea agreed to accept boneless beef from animals under 30 months of age, but significant exports will not resume while the “zero tolerance” interpretation for bone fragments remains in place. South Korea and Mexico were basically even as the second- and third-largest markets for U.S. beef prior to 2004.

Taiwan was the third-largest market for U.S. beef in 2006, receiving 67 million pounds of U.S. product. Taiwan, the Caribbean region, and all other countries accounted for 192 million pounds of U.S. exports in 2006, about 17 of the U.S. total. Vietnam, Germany, and Hong Kong are among the most important countries in the “other” category.

The forecast for U.S. beef exports for 2007 is unchanged from last month, at 1.440 billion pounds. This represents a 25-percent increase over 2006, reflecting mainly growth in exports to Japan and slow growth in exports to South Korea. New developments with these countries have the largest potential impact on U.S. beef export levels over the months ahead. U.S. beef prices in 2007 are expected to remain near levels seen in 2006, and U.S. beef production is expected to increase this year, so beef should remain attractive to all customers from that standpoint.

Dairy

Higher Dairy Prices Are Expected in 2007 Despite Increased Production

Forecast milk production for 2007 is 184.3 billion pounds, up 1.4 percent from the 181.8-billion pound total estimated for 2006. Cow numbers are expected to decline slightly in 2007, averaging 9,085 thousand head for the year. The decline is tempered from earlier expectations. Production per cow continues to rise and will likely reach 20,280 pounds in 2007. Higher corn and alfalfa prices have depressed the milk-to-feed price ratio despite the considerably higher milk prices expected in 2007. According to January’s Livestock Slaughter report, dairy cattle slaughter for the January to December 2006 period was 4 percent above that of 2005. In contrast, the January Cattle report indicated dairy farmers had 4.31 million replacement heifers on hand on January 1, slightly more than 1 percent above 2006. Replacement heifers per 100 cows are about the same as last year, and the January dairy cow price reported in Agricultural Prices is well below 2006, implying that heifers are more available. The increase in replacement heifers, coupled with higher cow slaughter, may suggest that producers are responding to lower milk-tofeed price ratios by replacing less productive cows. Such a response would help lower feed costs per unit of milk. The best capitalized producers would be in a position to adopt this strategy. The herd retirement announced by Cooperatives Working Together in early February should contribute to the process of removing lower productivity cows from the national dairy herd. The effect of the buyout should be most evident in the second quarter.

Demand for dairy products remains robust, especially for dry products. Cheese prices are forecast to climb in 2007 to $1.320 to $1.390 per pound. The underpinnings for cheese demand are increased employment growth and rising wages. The increases are in those sectors with a high propensity to consume. The National Restaurant Association is forecasting 5-percent growth in sales for 2007. Sales increases are expected in all sectors of the restaurant industry.

Butter production in 2006 was the highest since 1962. Increased milk production should keep butter production up in 2007. Butter prices should be slightly higher in 2007. However, price increases for this product are unlikely to be as strong as for other products since supplies are ample. Butter price is expected to average $1.235 to $1.335 per pound in 2007.

There is exceptional demand for nonfat dry milk (NDM), skim and whole milk powders (SMP/WMP), and whey. Export demand is strong because many major markets, such as Mexico and Algeria, maintain feeding programs for their populations and are cash rich from petroleum sales. Domestic dry product demand remains strong on the same fundamentals that are supporting cheese demand since dry products are also used in food manufacturing. Demand also remains strong in Asia because of economic growth. Meanwhile, weather-reduced production from Australia and the elimination of restitutions on SMP/WMP in the European Union has limited global supplies. Availabilities of dry products could increase in the second half of 2007 if production in Oceania returns to more nearly normal levels. NDM prices are forecast $1.050 to $1.110 per pound in 2007. Whey prices are forecast to climb to 45.5 to 48.5 cents per pound in 2007.

Further Information

For more information view the full Livestock, Dairy and Poultry Outlook - February 2007 (pdf)

February 2007

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