January 9, 2003

Market Advisor: Review of Livestock Prices for 2002 and an Outlook for 2003

By Tim Petry, Livestock Economist
NDSU Extension Service

Most livestock producers in the Northern Plains were disappointed with the prices they received for livestock in much of 2002. Prices did begin to recover late in the year, which has led to optimism for the year ahead. Barring unforeseen circumstances, 2003 should bring higher average prices for most market classes of livestock than were received in 2002.

Cattle prices were lower than 2001 for the first three quarters of 2002 for a number of reasons.

Record fed cattle weights, which happened after the Sept. 11, 2001, terrorist acts, continued throughout 2002. The average dressed steer weight for the first three quarters was 819 pounds, 30 pounds heavier than in 2001. Widespread drought in many cow-calf producing states prevented retention of heifers for breeding purposes and increased cattle slaughter. Record high beef production -- almost 4 percent higher than 2001 -- resulted.

There were also historically large, competing supplies of pork and poultry available. Beef exports to Japan fell because of mad cow disease adversely affecting beef consumption in that country. And to complicate matters, a West Coast dockworker strike backed up meat and poultry destined for Pacific Rim countries and pressured prices.

The outlook for better cattle prices in 2003 is mainly a result of expected declines in beef supplies. The December 2002 USDA Cattle on Feed report indicated 10.9 million head of cattle on feed, a reduction of more than 8 percent from a year ago. Although slaughter weights will probably remain high by historic standards, weights likely will be near levels of last year. USDA is forecasting total beef production in 2003 to be down about 5 percent from the record 27.1 billion pounds produced in 2002.

Fed cattle prices should average in the mid to high $70s until April, with a normal seasonal decline occurring into mid-summer as slaughter increases. Feeder cattle prices should increase moderately in 2002, with weather being the biggest unknown factor. If severe drought conditions continue to expand in cow-calf producing states, feeder cattle prices will be pressured. Average to ample rainfall in parts of the area would help to stimulate heifer retention and be positive for prices.

Corn Belt weather this summer also will be critical to feeder cattle prices. A good corn crop would be positive for prices, and a drought-stressed crop with resulting higher corn prices would negatively impact feeder cattle.

Hog prices were low and below breakeven in 2002 due mainly to cyclical high production levels. U.S. pork production at 19.7 billion pounds was a new record, up almost 3 percent from 2001. The lowest prices for the year occurred in August when sow slaughter was quite high, averaging more than 16 percent higher than last year. Even very large hog producers decreased sow numbers, which pressured the market but will mean better prices in the future. Higher corn prices, caused by drought conditions in parts of the Corn Belt, adversely affected profitability and also caused producers to reduce herds.

The December 2002 USDA Hogs and Pigs report released on Dec. 30 indicated that the U.S. breeding herd was down 3 percent and the market hog inventory was down 1 percent from 2001. Although pork production will remain relatively high in 2003, the largest supplies will be available in the first half of the year. On an annual basis, production should fall about 2 percent in 2003.

Prices in the first quarter of 2003 should average in the low to mid $30s, and increase into the high $30s to $40 by mid-summer. Corn Belt weather this summer will be critical as resulting corn prices will affect profitability.

Lamb prices rebounded nicely in the last half of 2002. Prices were abnormally low in the first part of the year because overfinished and record heavy slaughter lambs increased production.

Furthermore, lackluster demand that occurred after Sept. 11, 2001, coupled with a slowdown in the U.S. economy, adversely impacted prices.

By the end of the year, the industry had done a good job of reducing slaughter weights to a more historic level, and white tablecloth restaurant demand for lamb had improved. Increased pelt prices also supported lamb prices.

Severe drought conditions in several major sheep-producing states caused forced liquidation of ewes, so a smaller lamb crop will likely be produced in 2003. Slaughter lamb prices should follow normal seasonal patterns and average in the mid $70s to the mid $80s in the next several months.

Even though prices look better for most market classes of livestock for 2003, producers should keep in mind that many unpredictable factors, weather and dock strikes for example, can affect the market. Therefore, producers should continue to monitor market fundamentals as they occur.

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Source: Tim Petry, (701) 231-7469, tpetry@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu