There are two sets of factors to consider when looking at the 2003 U.S. cattle market — the bearish factors and the bullish factors, says Walter Prevatt, Auburn University Extension economist.
"The bearish factors to consider include higher feedstuff prices, large beef imports, low by-product values, and slow economic growth," says Prevatt. "The bullish factors to consider include a declining cattle and calves inventory, lower levels of beef production, improving beef demand, and growth in beef exports."
The outcome of these factors, he adds, will determine 2003 cattle market prices.
Many cow-calf and stocker operators are expected to show a cash profit during 2002 (cash returns above cash expenses), says Prevatt. "The improvement of market prices in 2003 will help restore profitability for each sector of the cattle industry. Higher cattle prices are projected for 2003 which should translate into profits for stocker and feedlot producers and significant profits for cow-calf producers," says the economist.
The cattle cycle, he explains, is measured from the lowest inventory of cattle and calves to the next lowest (trough to trough) over time. "The next low of the U.S. cattle and calves inventory will become more clear only when cow slaughter declines further and increases in beef cow and milk cow replacements are realized. The stimuli to initiate these two events are profitability and reasonable weather," says Prevatt.
Despite the lower slaughter cattle beef prices that producers are currently facing, the continued decline in the cattle and calves inventory is price supportive if beef demand does not weaken, he says.
In addition, notes Prevatt, any reduction of total meat supplies and/or improvement in beef exports also will contribute to improving beef cattle prices. A watchful eye on these factors will alert cattle producers about future potential profits."
The number of cattle operations in the United States has declined steadily during the last 27 years, says Prevatt. Since 1975, the number of U.S. cattle operations has decreased from 1.9 to 1.1 million operations, representing a decrease of approximately 816,000 operations (44 percent).
"The largest decline — 353,000 operations — was during the 1979-90 cattle cycle. Since 1990, the United States has lost about 269,000 cattle operations. Significant declines were evident in both beef and dairy operations.
"As a result, the average size of a cattle operation is increasing. A continued modest decline in the number of cattle operations is expected for the future due to rising production costs, lack of profitability and risk," says Prevatt.
Despite a small reduction in slaughter cattle numbers during 2002, record heavy slaughter weights should increase beef production to a possible record level, he says.
The level of total beef production in 2002 is expected to approach a record 27 billion pounds. Weather, feedstuff prices, the destination of other heifers greater than 500 pounds (into feedlots or cow replacements), and direction of slaughter cattle prices will add or subtract from this level of beef production during the rest of 2002, says Prevatt.
"Although cattle inventories are declining, fed cattle supplies need to be worked through the marketing channel before fed cattle prices can have an opportunity to strengthen. Projected beef production during 2003 is expected to decline between 2 to 3 percent and total about 26 billion pounds."
U.S. per capita beef consumption (retail weight basis) during 2002 was expected to be about 68 pounds per person due to the improvement in beef demand and the large level of beef production, says Prevatt.
The first real improvement in beef demand in about 20 years was witnessed during 1999, and beef demand has continued to improve during 2000 and 2001. The retail choice beef demand index increased from 51 in 1998 to 58 in 2001.
"A variety of reasons have been cited for this improvement in beef demand, including positive changes in consumer perception about beef as an important contributor to a healthy diet and the introduction of numerous convenience-oriented beef products," he says.
U.S. beef imports and exports both have increased significantly during the last three decades, says Prevatt. However, U.S. beef exports declined by about 9 percent during 2001 compared with a year earlier.
U.S. beef exports during 2002 appeared to have recovered despite the sharp decline in beef exports to Japan. Korea and Mexico, emerging from economic recessions, unexpectedly posted large beef demands that more than offset the sharp decline in beef exports to Japan.
Also, beef exports to China, Russia and other markets are expected to increase during 2002. USDA analysts expect 2002 total beef exports to increase 5 to 6 percent from 2001 and another 4 percent increase in 2003.
Imports of cattle are expected to increase during 2003 as higher feeder and slaughter prices make the United States cattle market more attractive for Canada and Mexico, says Prevatt. Also, the drought in Canada has reduced both forage and feed grains, thereby increasing cattle exports to the United States.
Slaughter cattle, feeder cattle, and feeder calf prices have been on a roller coaster ride during the past 12 years, says Prevatt. Alabama feeder cattle market prices have been on an upward trend since April 1996.
"The significant price decline between 1994 and 1996 was due to large levels of beef production which resulted from an increasing cattle inventory and a drought in the Southern Plains, a large supply of competing meats — pork and poultry — and high feedstuff prices."
Slaughter cattle prices averaged about $72.25 per hundredweight in 2001. Slaughter cattle prices during 2002 should average between $65 to $67 per hundredweight if consumer demand continued strong. Fourth quarter slaughter cattle prices were expected to strengthen to the low $70s per hundredweight.