Economics: April 2000

The United States Department of Agriculture's annual inventory report, Cattle released January 28, indicated that cattle herd liquidation continued during 1999. The United States all-cattle and -calves inventory declined to 98.048 million head, 1.1 percent below that of a year ago, marking the fourth year in a row that cattle producers reduced the size of the U.S. herd. The inventory on January 1, 2000, was 5.3 percent smaller than on January 1, 1996, when inventories peaked during the current cattle cycle (figure 1).

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Cattle feeders aggressively placed cattle on feed during December and January. As a result, February on-feed inventory in the historically recorded seven states established a new record of 9.885 million head, 11 percent more than a year ago and 14 percent more than the last five-year average for February. January marked the sixth month in a row that net placements of cattle on feed exceeded the previous year's level. These large placements will continue to haunt the cattle-feeding sector. They mean that cattle slaughter during 2000 will be larger than expected. First and second quarter commercial beef production, fueled by large fall and winter placements and heavier dressed weights, is now expected to exceed last year's level by 1 to 2 percent. Summer (third) quarter beef production is still expected to fall below that of a year ago, but the decline could be small unless steer dressed weights decline from the levels that have held above 800 pounds per head since last September. It is important to realize that with the U.S. calf crop at 38.7 million head in 1999, about the same number as in 1960, beef production in 1999 was 26.385 million pounds versus 14.374 million pounds in 1960, an almost unbelievable 83 percent increase in beef production per calf. This increase is represented in figure 2 as beef production per cow.

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Fed slaughter cattle prices and choice boxed beef prices averaged 12 and 13 percent higher, respectively, than a year earlier in January. These yearly increases are encouraging in that they are more than expected from supply reduction alone. It appears that 1999's documented demand strength is carrying over into 2000. Last year marked the first time in twenty years that everyone agreed that demand for beef increased. The relevant question now becomes, why was beef demand stronger? A number of hypotheses have been presented and range from popularity of high protein diets to growth in the economy. Along the way new beef product development is usually mentioned. A comprehensive analysis of about ten factors contributing to beef demand concluded that virtually all of the increase in 1999 could be attributed to growth in consumer income and consumer willingness to spend a growing percentage of income (save less). Looking ahead to beef demand and cattle prices in 2000, we must assume that growth in consumer incomes and expenditures will continue to be the overriding factor to watch.

Thought for the month:
Work spares us from three great evils: boredom, vice, and need. ? Voltaire