k-state research & extension cattle outlook james mintert, ph.d. professor & extension ag....
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K-State Research & Extension
Cattle Outlook
James Mintert, Ph.D.
Professor
&
Extension Ag. Economist, Livestock Marketing
Department of Agricultural Economics
Kansas State University
K-State Research & Extension
Issues
Farm Policy Seasonality in Steer Feeding Cattle Cycle Weights Cattle On Feed & Placements Trade Demand
K-State Research & Extension
For Updated Livestock Marketing Information Visit
The
K-State Livestock & Meat Marketing Web Site
www.agecon.ksu.edu/livestock
K-State Research & Extension
“This squall between the packers and the producers of this country ought to have blown over forty years ago, but we still have it on our hands…”
Senator John B. Kendrick of Wyoming
(1919)
K-State Research & Extension
Johnson Amendment Unlawful for meatpackers to own, feed or
control livestock for more than 14 days prior to slaughter.
Coops exempt » if a majority of the ownership in the coop is
held by active members who own, feed or control livestock and provide them to the coop for slaughter.
Packers that slaughter less than 2% of annual slaughter of each type of livestock are exempt.
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Control Controversy
Harkin-Grassley Amendment » Unlawful for packers to own or feed livestock directly
through a subsidiary or through an arrangement that gives the packer operational, managerial or supervisory control over the livestock or over the farming operation that the producer is no longer materially participating in the management of the operation with respect to the production of the livestock
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What Does It Mean? Conflicting Legal Opinions Tremendous uncertainty about what type
of business arrangements would be legal Some lawyers believe that virtually all
strategic alliances and marketing agreements between packers and producers will be deemed illegal
Likely that “material participation” will be settled on a case by case basis
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Packer Concentration Increased Dramatically
Source: USDA & Sparks Co., Inc.
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Concentration Driven By Cost Considerations
Historically, gross profit margins have been about the same for all major meat packers
Differences in profitability across firms was attributable to differences in costs
Low cost firms came out on top
Economies of size in slaughtering and fabrication were very large(Sersland, Duewer & Nelson; McDonald; Paul)
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Vertical Integration Attractive To Investors Because Packer & Producer Profits
Negatively Correlated
Source: Sparks Co., Inc.
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Same Story In Beef Except Correlation Is Not As Strong
Source: Sparks Co., Inc.
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2001-2002 Isn’t The First Time Cattle Feeders Have Lost A Lot of
Money
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Late Spring & Summer Placements Tend To Be More Profitable & Carry
Lower Risk
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Seasonality of Prices & Performance Has A Big Impact On Profitability
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Liquidation Has Been Underway for 6 Years
U.S. Cattle Inventory Growth Rate1925-2001
-10
-8
-6
-4
-2
0
2
4
6
8
10
25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 00
Year
Percent
Source: USDA & KSU
K-State Research & Extension
Resulting In Yet Another Herd Reduction
Current inventory is about 27% smaller than in 1975
U.S. Cattle InventoryJanuary 1, 1925-2002
50
60
70
80
90
100
110
120
130
140
25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 00
Year
Million Head
January 1, 2002 = 96.7 Million Head .
0.6% Less Than . on Jan. 1, 2001 .
Source: USDA
K-State Research & Extension
Average Cattle Cycle Is About 10 Years
But Current Cycle Just Completed 13th Year
Cattle Inventories By Cycle .
75
85
95
105
115
125
135
1 2 3 4 5 6 7 8 9 10 11 12 13Year of Cycle .
Cattle Inventory (Million Head) 1949-1958
1958-1967
1967-1979
1979-1990
1/1/02
Source: USDA & KSU
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When Will Cow-Herd Expand? Forage Availability Will Be Critical
Estimated 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
Year
$'s Per Cow
.
Source: K-State Research & Extension Returns ABove Variable Costs
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But A Smaller Herd Doesn’t Necessarily
Mean Smaller Production
Beef Production vs. Cattle Inventory
0
5
10
15
20
25
30
50 55 60 65 70 75 80 85 90 95 00
Year
Beef Production (Billion Lbs.)
70
80
90
100
110
120
130
140
Cattle Inventory (Million Head)
Beef Production
Cattle Inventory
Source: USDA
K-State Research & Extension
Heavier Carcass Weights Tell The Story
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Weights Have Been A Big Problem In 2002
But Have Declined More Than Usual Since January
Weekly F.I. Steer Dressed Weight
755760765770775780785790795800805810815820825830835
5-Jan 2-Mar 27-Apr 22-Jun 17-Aug 12-Oct 7-Dec
Date
Pounds per head 2001
2002
5 Yr Avg
Source: USDA & KSU
K-State Research & Extension
KANSAS FEEDLOT CLOSEOUTSAvg. Daily Gain, Steers
2.7
2.8
2.9
3.0
3.1
3.2
3.3
3.4
3.5
3.6
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Pounds
Avg. 1996/00 2001 2002
04/03/02
Weight Increase Not Because of Feedlot
Performance
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KANSAS FEEDLOT CLOSEOUTSAvg. Days on Feed, Steers
120
130
140
150
160
170
180
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Days
Avg. 1996/00 2001 2002
04/03/02
Longer Feeding Periods Are The Problem
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Negative Basis Structure Encouraged Feeding To Heavier
Weights
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But Basis Structure Has ChangedWill It Lead To Shorter Feeding
Periods?
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Will Weight Decline Extend Into May?
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Cattle On Feed Below A Year Ago, But Still Large By Historical
Standards
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And Placements Rose During February
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Placement Increase Focused On Heavy Cattle
Which Will Be A Problem By Late Spring
Year-To-Year % Change in Placements on Feed U.S. & Canada Combined, By Placement Weight
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
LT 600# 600-699# 700-799# 800# Plus Total
Placement Weight Category
% Change From Previous Year Last 90 Days Last 120 DaysLast 150 Days Last 180 Days
Placements Through Feb., 2002
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Non-Fed Slaughter Below A Year Ago
But Beef Cow & Calf Slaughter Up In Late March
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Small Placements Last Fall Pushed Slaughter Pace Below 2001 During
March
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But Heavy Weights Kept Production Pace Up
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Long-Run Beef Export Growth Has Been Phenomenal
U.S. Beef Exports .
0.0
0.5
1.0
1.5
2.0
2.5
3.0
61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01
Year
Billion Pounds
.
Source: USDA .
K-State Research & Extension
And The Gap Between Our Imports & Exports Has Narrowed
Dramatically
U.S. Beef Imports & Exports .
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01
Year
Billion Pounds
.
Beef ExportsBeef Imports
Source: USDA .
K-State Research & Extension
U S BEEF, VEAL, & LIVE CATTLENET IMPORTS
Animal Equivalents, Annual
-500
0
500
1000
1500
2000
2500
3000
3500
4000
4500
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Thou. Head
Total Mexico Canada
Net Imports Up RecentlyBut Still Far Below Early 1990’s
Source: LMIC
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Weak Economies In Importing Countries & BSE In Japan Mean Exports Will Be Weak In
2002
2001 U.S. Beef Exports Market Share By Country
CANADA10%
MEXICO24%
JAPAN44%
S. KOREA15%
OTHER6%
CARIBBEAN1%
Source: USDA & KSU, based on quantity shares
K-State Research & Extension
January Exports Down 1.8%
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Exports To Japan Down 33% vs. Prior Year From November Forward
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Summary
2002 annual beef imports up 1 to 3%
2002 annual beef exports down 3 to 5%
Weights will continue to decline
» but remain above last year through summer
U.S. beef production above 2001 until fall
» Annual total near 2001 level
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Best News In
Beef Industry
In 20 Years
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Demand Showed Signs of Strengthening In 1999, 2000 & Again In 2001
Beef Price Quantity RelationshipsAnnual, 1980-2001
80
81
82
83
8485
86878801
00
89
275
300
325
350
375
400
425
450
64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80Per Capita Consumption - Retail Weight .
Deflated Beef Price - Cents per
Lb
Source: USDA & Commerce Dept. Price Deflated by GDP Implicit Price Deflator 1999=100
94 95
93
90
92
91
9699
9897
K-State Research & Extension
Another Look At Demand
Compute a demand index
The index accounts for changes in beef quantity
The index relates current beef prices to prices expected if demand was held constant at some prior year’s level
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Domestic Retail Beef Demand Is Improving
Retail Choice Beef Demand Index88 86
8379 76
70 6966 65 63 60 59 57 56 54 52
58
51
94
5553
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 98 99 00 01
Year
Index Value
Source: USDA, Dept. of Commerce & K-State Research & Extension Price Deflated By CPI, 1980 =100 for Beef Demand Index
Retail Choice Beef Demand Increased 5.3% during 2002
K-State Research & Extension
Cyclical Peak In Slaughter Cattle Prices Still
Ahead
Annual Average Steer Prices .W. KS 11-13 Cwt. .
35
40
45
50
55
60
65
70
75
80
85
75 77 79 81 83 85 87 89 91 93 95 97 99 01Year .
Ste
er
Pri
ce (
$/C
wt.
)
.
Source: USDA
K-State Research & Extension
But This Year’s Average Will Be Near Last Year
Year & Quarter Kansas Slaughter Steer Price
70.71
70-73
67-70
72-75
70-72
2002.1
2002.2
2002.3
2002.4
2002 Avg.
K-State Research & Extension
Futures Anticipate A Decline To The Mid-$60’s This Summer
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Are Futures Oversold?
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Are Futures Oversold?
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2002 Feeder Cattle Prices In Low to Mid-$80’s, Strongest Prices In Last Half of
Year
Dodge City 7-8 Cwt. Annual Average Steer Prices .
30
35
40
45
50
55
60
65
70
75
80
85
90
95
75 77 79 81 83 85 87 89 91 93 95 97 99 01
Year
Ste
er P
rice
($/
Cw
t.)
.
Source: USDA
K-State Research & Extension
Declining Corn Prices Helped Boost Feeder Cattle Prices Since Mid-
1990’s
Kansas Monthly Corn Prices
1.251.501.752.002.252.502.753.003.253.503.754.004.254.504.755.00
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00
YearSource: Kansas Ag. Statistics-USDA
1985-1989 Average = $2.23/bu.1990-1994 Average = $2.40/bu. 1995-1999 Average = $2.65/bu.
K-State Research & Extension
Feeder Futures Suggest High $70’s Low $80’s Trade
But Grain Prices Will Be Important
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Are Feeder Futures Oversold?
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Summary1. Cow-Calf Producers In Drivers Seat
2. Tougher For Margin Operators
• Cattle Finishers Still Losing $ This Winter Profits Could Prove Elusive Until Fall
3. Long-Term Outlook
• Cyclical Peak In Cattle Prices Is Still Ahead
• Major Risk Is Beef Demand
• Domestic Beef Demand Rebounding More Quickly Than Export Demand
K-State Research & Extension
For Updated Livestock Marketing Information Visit
The
K-State Livestock & Meat Marketing Web Site
www.agecon.ksu.edu/livest
ock