The U.S. Cattle Cycle and Calf Prices Gary Brester MSU Department of Agricultural Economics and Economics Montana Nutrition Conference 215 Bozeman, MT April 28, 215 1 OUTLINE 1. World Beef Markets 2. U.S. Beef Markets 3. U.S. Cattle Cycle 4. Long Term Calf Price Outlook 5. Questions 2 Brester: FSA Training Ag Marketing 1
OUTLINE 1. World Beef Markets 2. U.S. Beef Markets 3. U.S. Cattle Cycle 4. Long Term Calf Price Outlook 5. Questions 3 World Beef Production Million Metric Tons 6 58 56 54 52 48 46 44 42 4 198 1981 1983 1985 1987 1988 1989 1991 1993 1995 1997 1999 21 23 25 27 29 211 213 Production (Carcass Weight) Source: Foreign Agricultural Service 4 Brester: FSA Training Ag Marketing 2
World Beef Production Million Metric Tons 6 58 56 54 52 48 46 44 42 4 198 1981 1983 1985 1987 1988 1989 1991 1993 1995 1997 1999 21 23 25 27 29 211 213 Production (Carcass Weight) Source: Foreign Agricultural Service 5 World Beef Production Million Metric Tons 6 58 56 54 52 48 46 44 42 4 198 1981 1983 1985 1987 1988 1989 1991 1993 1995 1997 1999 21 23 25 27 29 211 213 Production (Carcass Weight) Source: Foreign Agricultural Service 6 Brester: FSA Training Ag Marketing 3
World Cattle Inventories Million Head 1,2 1,1 1,1 1, 1, 9 9 8 8 7 7 197 1972 1976 198 1988 World Cattle Inventory Source: Foreign Agricultural Service 7 Cattle Inventory Increases/Beef Production Million Head 3 3 2 2 1 1 Million Metric Tons 14 12 1 8 6 4 2 Argentina Australia Brazil Canada China Inventory Mexico EU-27 Production India Russia United States Source: Foreign Agricultural Service 8 Brester: FSA Training Ag Marketing 4
India, Brazil, China Cattle Inventories Million Head 34 32 3 28 26 24 22 2 18 16 14 12 1 1999 21 23 25 27 29 211 213 215 India Brazil China Source: Foreign Agricultural Service 9 U.S., Argentina, Australia, EU-27, Canada Inventories Million Head 1 9 8 7 6 4 3 2 1 1999 21 23 25 27 29 211 213 215 U.S. Argentina EU-27 Canada Australia Source: Foreign Agricultural Service 1 Brester: FSA Training Ag Marketing 5
OUTLINE 1. World Beef Markets 2. U.S. Beef Markets 3. U.S. Cattle Cycle 4. Long Term Calf Price Outlook 5. Questions 11 US Beef Production vs. Cattle Inventory (January 1) Bil. Pounds 28 26 24 22 2 18 16 1972 1976 198 1988 Mil. Head 135 125 115 15 95 85 Cattle Inventory "U.S. Beef Production" 215 January 1 Inventory equals 89.8 million head (increase from inventory of 88.5 million head) ( calf crop was the lowest since 19, 33.9 million head) Source: Livestock Marketing Information Center & MSU Agricultural Marketing Policy Center 12 Brester: FSA Training Ag Marketing 6
Productivity of U.S. Beef Cow Breeding Herd Lbs 7 Carcass Weight Pounds Per Beef Cow, Annual 7 6 6 5 4 4 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 21 23 25 27 29 211 213 Source: Livestock Marketing Information Center & MSU Agricultural Marketing Policy Center 13 Nominal Fed And Feeder Cattle Prices $/cwt 3 2 2 1 1 Nebraska Direct 11-13 lb Choice Steers Montana -6 lb Steers 197 1972 1976 198 1988 Fed Cattle Feeder Cattle Source: Livestock Marketing Information Center & MSU Agricultural Marketing Policy Center 14 Brester: FSA Training Ag Marketing 7
Nominal Fed And Feeder Cattle Prices $/cwt 3 2 2 1 1 Nebraska Direct 11-13 lb Choice Steers Montana -6 lb Steers 197 1972 1976 198 1988 Fed Cattle Feeder Cattle Source: Livestock Marketing Information Center & MSU Agricultural Marketing Policy Center 15 Nominal Fed And Feeder Cattle Prices $/cwt 3 2 2 1 1 Nebraska Direct 11-13 lb Choice Steers Montana -6 lb Steers 197 1972 1976 198 1988 Fed Cattle Feeder Cattle Source: Livestock Marketing Information Center & MSU Agricultural Marketing Policy Center 16 Brester: FSA Training Ag Marketing 8
Real Fed And Feeder Cattle Prices $/cwt 3 27 24 21 18 1 12 9 6 Nebraska Direct 11-13 lb Choice Steers Montana -6 lb Steers 197 1972 1976 198 1988 Real Fed Cattle Real Feeder Cattle Source: Livestock Marketing Information Center (=1) 17 U.S. Beef, Veal and Live Animal Imports Annual, Billion Lbs, Carcass Weight Basis Billion Lbs 5 4 3 2 1 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 21 23 25 27 29 211 213 Total Canada Mexico Source: Livestock Marketing Information Center & MSU Agricultural Marketing Policy Center 18 Brester: FSA Training Ag Marketing 9
U.S. Beef Imports By Source Billion Pounds Carcass Weight 4. 3.5 3. 2.5 2. 1.5 1..5. 1983 1985 1987 1988 1989 1991 1993 1995 1997 1999 21 23 25 27 29 211 213 Australia New Zealand Canada/Mex Other Source: Livestock Marketing Information Center 19 3. 2.5 2. 1.5 1..5. U.S. Beef, Veal and Live Animal Exports Billion Lbs Annual, Billion Lbs, Carcass Weight Basis 1976 198 1988* ** 1989 *CUSTA **NAFTA Total Source: Livestock Marketing Information Center & MSU Agricultural Marketing Policy Center 2 Brester: FSA Training Ag Marketing 1
Value of U.S. Beef, Veal and Live Animal, By-Product Net Imports/Exports Million $ 4, 3, 2, 1, -1, -2, 1985 1988* 1991 ** 1997 23 29 *CUSTA **NAFTA Total Source: Livestock Marketing Information Center & MSU Agricultural Marketing Policy Center 21 OUTLINE 1. World Beef Markets 2. U.S. Beef Markets 3. U.S. Cattle Cycle 4. Long Term Calf Price Outlook 5. Questions 22 Brester: FSA Training Ag Marketing 11
U.S. Cattle Inventory (January 1) 1 125 Million Head 1 75 25 1867 1873 1879 1885 1891 1897 193 199 1915 1921 1927 1933 1939 1945 1951 1957 1963 1969 1975 1981 1987 1993 1999 25 211 Cattle Inventory (million head) Source: Livestock Marketing Information Center & MSU Agricultural Marketing Policy Center 23 Demand Has Increased 1. Domestic demand is a little stronger over the past several years a. Of course, per capita consumption is lower (not a demand decline) b. It has to be because we don t have as much around c. Price allocates 2. Foreign demand is increasing a. Increasing incomes b. Increasing population c. These are slow effects 24 Brester: FSA Training Ag Marketing 12
Supply Has Declined 1. Cost factors a. Drought b. Feed costs c. Grazing availability d. Labor costs 2. Alternative production factors a. Crop profitability b. Crop insurance c. Age 3. Structural factors a. Full time versus part time b. Larger cows 25 OUTLINE 1. World Beef Markets 2. U.S. Beef Markets 3. U.S. Cattle Cycle 4. Long Term Calf Price Outlook 5. Questions 26 Brester: FSA Training Ag Marketing 13
Motivational Icons of the Past 1. William Shakespeare 2. Clara Peller 3. Meat Loaf 4. Black Eyed Peas 5. General Eric Shinseki 6. Returning to one of my favorites 27 American Philosopher 28 Brester: FSA Training Ag Marketing 14
American Philosopher Yogi Berra 29 It s Déjà Vu All Over Again! American Philosopher Yogi Berra 3 Brester: FSA Training Ag Marketing 15
Real Fed And Feeder Cattle Prices $/cwt 3 27 24 21 18 1 12 9 6 Nebraska Direct 11-13 lb Choice Steers Montana -6 lb Steers 197 1972 1976 198 1988 Real Fed Cattle Real Feeder Cattle Source: Livestock Marketing Information Center (=1) 31 Real Beef Calf Prices 3 Dollars Per Hundredweight 2 2 1 1 191 1914 1918 1922 1926 193 1934 1938 1942 1946 19 1954 1958 1962 1966 197 Real Calf Price ( Dollars) Average Price Trend Source: Livestock Marketing Information Center (=1) 32 Brester: FSA Training Ag Marketing 16
Déjà vu All Over Again? 1. If demand is not impacted by disease scares or lower incomes a. Cattle prices will remain strong until beef supplies increase 2. We have seen these types of prices on 3 occasions a. 1951, 1973, 1979 33 Previous Price Spikes 1. Real price spikes occurred in 1951, 1973, 1979 a. All were years of low cattle numbers Followed herd liquidation Start of herd expansion b. But no more so than some other years in the cycle 34 Brester: FSA Training Ag Marketing 17
1951 ($243/cwt) 1. Initiation of the Korean War a. Concerns of food security following terrible supply disruptions during World War II b. Potential for a new World War c. Countries purchased agricultural commodities as a hedge 2. By 1954, calf prices were below the long run average of $139/cwt 35 1973 ($24/cwt) 1. 1972 Russian grain deal 2. Reductions in Peruvian fish meal 3. Declines in world production of other food and feed grains 4. Beef sector was expanding a. Hog sector had contracted b. OPEC quadrupled oil prices 5. High prices were short-lived as demand declined a. By 1975, prices were only $95/cwt b. Rebuilding peaked in 1975 at a record level of cattle inventory 36 Brester: FSA Training Ag Marketing 18
1979 ($243/cwt) 1. 2 million head decline in cattle inventory (15%) between 1975 and 2. Herd rebuilding began 3. 1979 OPEC oil shock increased costs and hurt demand 4. Rebuilding lasted only two years before liquidation occurred 5. By, prices ($132/cwt) were below long-run average 37 Real Beef Calf Prices 3 Dollars Per Hundredweight 2 2 1 1 191 1914 1918 1922 1926 193 1934 1938 1942 1946 19 1954 1958 1962 1966 197 Real Calf Price ( Dollars) Average Price Trend Source: Livestock Marketing Information Center (=1) 38 Brester: FSA Training Ag Marketing 19
Real Beef Calf Prices 3 Dollars Per Hundredweight 2 2 1 1 191 1914 1918 1922 1926 193 1934 1938 1942 1946 19 1954 1958 1962 1966 197 Real Calf Price ( Dollars) Average Price Trend Source: Livestock Marketing Information Center (=1) 39 Real Beef Calf Prices 3 Dollars Per Hundredweight 2 2 1 1 191 1914 1918 1922 1926 193 1934 1938 1942 1946 19 1954 1958 1962 1966 197 Real Calf Price ( Dollars) Trend Source: Livestock Marketing Information Center (=1) 4 Brester: FSA Training Ag Marketing 2
Real Beef Calf Prices 3 Dollars Per Hundredweight 2 2 1 1 191 1914 1918 1922 1926 193 1934 1938 1942 1946 19 1954 1958 1962 1966 197 Real Calf Price ( Dollars) Trend Source: Livestock Marketing Information Center (=1) 41 ($255/cwt) 1. 8 million head decline in cattle inventory (1%) between 27 and a. Production declining b. World production is low c. Demand is solid 2. Will the supply side shocks noted above reverse themselves? 3. Will substantial herd rebuilding occur in the U.S.? a. Elsewhere? 42 Brester: FSA Training Ag Marketing 21
Questions? 43 Brester: FSA Training Ag Marketing 22