NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665
September 16, 1999
Harlan Hughes, Extension Livestock Economist
NDSU Extension Service
USDA's July All-Cattle Inventory confirmed that the nation's beef cattle herd is continuing to get smaller. That's additional evidence things are getting better for cow-calf producers.
The inventory indicated a 1999 calf crop of 38.3 million head, down 2 million head from the 1995 high of 40.3 million head. This marks the fourth consecutive year of a decreased calf crop. Clearly, the year 2000 calf crop will again be smaller. Beyond year 2000, the size of the calf crop depends on how beef cow producers react to the beef cycle's run-up in calf prices.
If the calf crop has been going down as the inventories suggest, then why hasn't the number of cattle on feed decreased during the last three years? Fed cattle marketings have been greater than those of a year ago five out of the first six months of this year. Similarly, feedlot placements during the first half of 1999 exceeded those of 1998 for five out of six months. The answer to this question lies in the marketing patterns for the 1996, 1997 and 1998 calf crops.
The pattern of feeder cattle marketings changes with the cattle cycle. Each year, an increasing number of the 1996, 1997 and 1998 calves were slowed down and marketed as yearlings off grass -- many as heavy yearlings off grass. We delayed marketing the 1996, 1997, and 1998 calf crops as long as possible. Even though cattle numbers are dropping, marketings have in fact increased. Past experiences show that the drop in marketings will lag the drop in all-cattle numbers.
During the summer of 1998, the Sandhills of Nebraska were full of yearlings on grass--enough yearlings to drive up pasture rents. It was a different story in the Sandhills during 1999. By mid-summer there apparently were pastures that could be rented immediately with just a phone call. Apparently, the previous three years of dwindling calf crops finally started to take its toll on the backlog of yearling steers in the marketing system. As a result, feedlot placements of yearlings are projected to be down in 2000, suggesting that interest in calf-feds will once again increase. Given the fact that feedlots have added more than 750,000 additional bunk spaces since the 1996 peak in cattle numbers and given the fact that we have smaller calf crops than we had 10 years ago, someone is going to come up short of feeder cattle.
In addition to the delayed feeding of yearlings in recent years, cattle feeders also fed considerably more heifers. Heifer slaughter has been extremely high for the past two years. Once beef cow producers get the signal to hold back heifers for breeding, heifers directed toward feedlots will drop off. Couple this change with a projected drop in total beef production in 2000, and we have the makings for a stronger feeder calf market during the next two to three years. The net result of all of this is that cow-calf producers will move into the drivers seat with respect to owning feeder calves. Beef cow producers can choose if and when they are going to sell their calves to cattle feeders.
We know from previous cattle cycles that beef supply continues to increase during the early years of downturn in all-cattle numbers, and we know that the drop in beef supply lags the drop in the all-cattle numbers. During this drop in numbers, animals are marketed heavier and added heifers are run through feedlots rather than into breeding herds. The data show that this has happened with the 1996, 1997, and 1998 calf crops. However, this is about to come to an end.
Since we elected to feed instead of breed 1998 heifer calves, the year 2000 calf crop is assured to being even smaller. Beef production is projected to decline in 2000 and the magnitude of the drop in beef production depends on how fast cow-calf producers decide to hold heifers for herd expansions. I suspect that $90 plus calves at weaning this fall will trigger modest increased heifer retention. However, rather than hold back heifers, many beef cow producers are going to sell their heifer calves and pay some bills.
The Canadian cow herd is following the same pattern. The Canadian July 1999 inventory indicates that they have 4.55 million beef cows in inventory. Keep in mind that the United States had 34.1 million beef cows for a U.S./Canadian ratio of 7.5 to 1. The United States has more beef replacement heifers (4.8 million) destined for the beef cow herd than Canada has in their total beef cow herd.
Canadian beef cow numbers were 1 percent less in 1999 compared to 1998 -- the same drop as in the United States. Both national herds are following a similar cattle cycle pattern and resulting beef price pattern. Both countries are poised to enter the same up-trending beef price cycle over the next two to three years. The magnitude of the up-trend in Canadian beef price will be higher due to the weaker Canadian dollar. A $10 increase in U.S. calf prices implies a $14 to $15 increase in Canadian calf prices.
Imports of cattle from Canada were down 23 percent from January through May 1999. This amounted to a reduction of 132,730 head--a little over one day's kill. Feeder cattle imports (500 to 700 pounds) of Canadian cattle have dropped 60 percent; however, the 1998 base was very small. The major drop in imports have been in slaughter cattle. The decline in May alone was 50,000 head, or 30 percent below May 1998.
Cattle imports from Mexico during the first five months of 1999 were larger than a year ago but posted year-to-year declines during April and May. Imports from Mexico during January-May 1999 increased by 66,784 head (20 percent) compared to the same period in 1998.
Overall, total cattle imports into the United States from January through May fell 66,020 head for a reduction of 7 percent. As a result, the surge in placements of cattle on feed this year is clearly not attributable to an increase in cattle imports.
What does all of this mean for planning prices for marketing 1999 feeder calves? The quick answer is stronger calf prices and we are already seeing those. Steer calves at 500 to 600 pounds are currently (as of early September) about $90. I suspect that calf prices could weaken some during the fall runs in the northern plains so I am suggesting fall 1999 steer calves (500 to 600 pounds) in the high $80 or low $90s. High pork production in the fourth quarter will also impact beef prices. What will happen in the pork industry during the rest of this year is the one big unknown for beef right now.
Heifer discounts of $6 to $8 per hundredweight will be common. High genetic quality heifers, however, will have a much smaller discount or perhaps even no discount as these heifers will be directed toward becoming replacement heifers. My current budgets suggest a typical cooperator in the Integrated Resource Management program could earn upward of a $110 net return per cow in 1999. This compares to a 1998 average of $43 and a five-year average of $21 per cow. Updated price projections and updated budgets for alternative marketing program for 1999 calves will be posted on my Web site at www.ag.ndsu.nodak.edu/cow under the "weekly prices" button starting in late September. Please check the Web site for my latest updates in planning prices and marketing budgets.
In summary, the beef cow-calf producer is moving into the driver's seat with respect to the marketing of feeder calves. Some good times are returning for the cow calf producer.
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Source: Harlan Hughes (701) 231-7380
Editor: Tom Jirik (701) 231-9629
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