Market Advisor: Reduced Supply and Strong Demand Support Cow Prices

Market cow prices in the Northern Plains are averaging 15 to 20 percent higher than at this same time one year ago and 25 to 30 percent higher than the five year average. Reduced supplies of both domestic and imported cow beef and continued strong demand are the major reasons behind the price increase.

So far in 2004, U.S. cow slaughter is down 15 percent from last year. Beef cow slaughter is down 16 percent and dairy cow slaughter is down 13 percent from 2003. The reduced beef cow slaughter reflects a cyclically smaller cow herd, improving moisture conditions in some Plains and Western states, and the ban on cow imports from Canada since May 2003. Declining dairy cow slaughter is due to strengthening milk prices, relatively heavy culling last year and, partly, to an industry sponsored cow reduction program.

U.S. cow numbers have declined for eight consecutive years, which is an abnormally long liquidation phase for a cattle inventory cycle. Most liquidation phases last four years long and occur because of high cattle numbers and poor economic returns. The additional four year decline for this cycle was due to adverse weather conditions.

Several Western cattle producing states have suffered drought conditions for four to five years. By the fall of 2003, close to 50 percent of the U.S. beef cow herd was in the very dry area, west of a diagonal line from Lake Superior to the Western tip of Texas. Cattle prices and economic returns were high enough in 2003 and the previous three years to stimulate herd rebuilding, but poor range and pasture conditions would not permit it.

The U.S. beef cow herd has declined 2.5 million head since 1996. Current feeder cattle price levels should stimulate interest in replenishing herds when adequate moisture returns to dry areas.

Demand for all beef, including hamburger, continues to be strong in 2004. Hamburgers, a long time staple in American diets and especially popular as fast food meals for children, are gaining renewed popularity with older consumers. Low carbohydrate diets, popular with weight conscious adults, have caused the food retailing sector to offer low carb, no bun hamburger alternatives.

Affluent baby boomers are demanding higher quality hamburgers so food retailers have responded with new menu items such as $6 burgers and Angus beef burgers. High class, white table cloth restaurants on the East and West coasts are even offering $15 to $20 hamburgers on their menus.

Hamburgers are increasingly being promoted on senior citizen menus. Seniors say they enjoy the consistent flavor and palatability of hamburgers.

Most imported beef is utilized for the same purposes as domestic cow beef. However, imports in 2004 will likely be down from historic levels.

Australia and New Zealand are the major sources of imported manufacturing grade beef. Imports from Australia are below historic levels due to a drought and declining herds. Some beef from Australia and New Zealand, which typically comes to the U.S., may be rerouted to Japan and South Korea in 2004, as those countries have banned US beef due to the BSE case that was discovered in the U.S. last December.

Canada historically exported about 200,000 cull cows to the U.S. each year. That number rose to 372,294 in 2002 with dry weather in Saskatchewan and Alberta. Cow imports from Canada declined to 136,161 head in 2003 because the U.S. banned cattle from Canada after May 20 due to the Canadian BSE case. The ban remains in effect in 2004. However, in upcoming months USDA is expected to publish proposed rules for comment, which could re-open the border to cows later in the year. A proposed rule for allowing cattle less than 30 months of age to enter was in a comment period until April 7. Additional information is available at www.aphis.usda.gov.

Cow prices are expected to stay strong in 2004 and follow normal seasonal patterns. Prices typically increase through April and then decline moderately through August. Sharp declines occur in October and November when cows are taken off summer pastures, calves are weaned and cull cows are marketed.

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Source: Tim Petry, (701) 231-7469, tpetry@ndsuext.nodak.edu
Editor: Rich Mattern, (701) 231-6136, richard.mattern@ndsu.nodak.edu