Economics: February 2001

The cattle cycle is alive and well in 2001, with prices for all classes of cattle moving upward over the last three years (figure 1).

This increase in price holds true with the ten-year cyclical nature of the market and closely corresponds with a decline in total cattle inventory. What does that mean? Good news! Cow-calf producers should have a banner year. With calf prices in the 105- to 115-dollar-per-hundredweight range for 500- to 550-pound steers, it will be a seller's market for calves, assuming corn is about 2 dollars per bushel. With the total cattle inventory (figure 2) at less than 100 million head, cow-calf operations should be profitable during the next two to three years, perhaps even longer (figure 3).

This is a time in the cattle cycle for you producers to optimize your profits by paying close attention to the costs and production of your herds. It can also be a time to make a serious analysis of your financial position. Should you use profits to pay off debt or put some money aside for when the cattle cycle turns downward? Please remember that heifers retained during the next three years will be at their productive peak in 2005 to 2008 at the other end of the cattle cycle.

Although cow-calf producers are enjoying a few years of profit, the market will provide challenges for stocker operators. Their margin will be squeezed by the higher cost of cattle. Competition will force operators to buy lighter cattle and keep them longer so that the average feeder cattle prices they receive in 2001, 85 to 90 dollars per hundredweight if corn is in the 2-dollar range, will provide them a profit. So if you are a stocker operator, this could be a time to consider positioning yourself so that you can buy your replacement cattle at seasonal lows (figure 4).

This should be an exciting time for those of you already in the cattle business. Consumer demand for beef has improved, and prices are good for the producer. Those considering getting into the cow-calf business need to carefully analyze their investment to determine its return over its life.