Supply Side of Cattle Market Looks Good
The annual USDA Cattle inventory report revealed that cattle numbers declined again in 2002. This is the seventh consecutive year for cattle and calves inventory declines and, compared to the "normal" liquidation of four years, makes this one of the longest liquidation periods on record (Figure 1).
Overall, the beef cow inventory declined, but beef cow numbers actually increased from one to six percent in the major beef cow states of Texas, Missouri, Oklahoma and Kansas. This may be the preliminary indication that cattle producers are beginning to consider expansion. However, cow slaughter, particularly beef cow slaughter, through mid-February of 2003 is running more than ten percent ahead of 2002. With improving markets, this may be an indication that the effects of drought still linger. The key then to the liquidation/expansion question will be weather conditions this spring.
Cattle on feed numbers are well below 2002 and are 5.3 percent below the five-year average inventory. Fed cattle inventories should remain tight through April. The annual cattle inventory report includes numbers on small grain pastures in Kansas, Oklahoma and Texas. These numbers are up substantially over 2002 almost one million head. With wheat grain prices significantly lower than last fall, many of these cattle may remain on wheat for graze-out. If this occurs, placements on feed will be spread over a longer period, and any negative price effect on late summer fed cattle prices will be mitigated.
The Commerce Department has revised down estimates of the U.S. population, so per capita consumption and meat demand were stronger in 2002 than previously thought. Beef demand is continuing to look very good so far in 2003. In fact, rumors of war and higher fuel prices do not seem to be dampening consumer desires to eat beef.
In summary, the supply side of the cattle market looks good. Consumer demand for beef is evident. Packer and feeder margins are positive. The weather and a lack of internal industry consensus on critical issues are the potentially negative factors. All in all, it appears that cow-calf producers should see relatively good calf prices at least through 2005 and perhaps 2006. Margin operators, stocker-feeder producers and cattle feeders will have to figure carefully as their per unit margins decline with rising calf prices toward the middle of the decade.
Thought for the month: An economist is a man that can tell you about anything he'll tell you what can happen under any given conditions, and his guess is liable to be just as good as anybody else's, too. Will Rogers, May 26, 1935