January 5, 2001
A very happy new year!
By Lana Robinson
Field Editor
Cattlemen can anticipate a prosperous New Year, according to a respected Extension livestock marketing economist, who predicts the strong beef demand and prices they currently enjoy will grow stronger in 2001.
"I've got the best news for cattlemen that I've had in 37 years," said Dr. Ernie Davis in mid-December. "I expect record prices for cattle in 2001. We're going to have record prices for feeder cattle and fed cattle prices will be high. Of course, a lot depends on the weather, but even the weatherman is saying things we want to hear. We're through with La Niña—finally! I don't know when we'll get into El Niño, but in between the two events, we should have more normal patterns this next year. If it rains, and we have good pasture, we'll start rebuilding the cow herd. Producers will start holding back those heifers, which further diminishes feeder calves, pushing the price up."
Cattle slaughter and beef production are both expected to fall below the previous year's level throughout 2001, leading to slaughter steer and heifer prices that will consistently trade above $70 during 2001. Ultimately, strength in next year's slaughter cattle market will be determined by cow-calf producers' herd expansion decisions. If, as Davis predicts, producers decide to start holding back heifers and continue to reduce cow kills, the resulting slaughter reduction could be the necessary catalyst to produce cash prices in the upper $70s. As it stands now, it appears slaughter cattle prices in early winter will trade predominantly in the low $70s and seasonal strength next March/April will push cash prices into the mid-$70s.
Though it was a painful way to accomplish it, recurring droughts have have helped bring cattle numbers in line, to some degree.
"Since 1996, the herd in Texas has really been reduced. Numbers peaked in 1995 at 5.95 million head. In 1996, we started out with 5.9 million and by the end of the year, the herd was down to 5.46 million head. We increased a little in '97 and '98. Then, in 1999, we experienced a decline. On Jan 1, 2000, we had 5.43 million head. Even at that, Texas still has over 16 percent of the beef cows in the nation," noted Davis.
"But nationally, we've had record supplies of beef produced for 1999 and 2000 and, at the same time, slaughter and feeder cattle prices have increased. How come? For the first time in 25 years beef has experienced an increase in domestic consumer demand!" said Davis.
The economist said beef demand has improved for several reasons, one of which is the fact that the nation has just experienced one of the best and fastest growing economies in a generation or more. And with increased incomes, it usually follows that consumers spend more money on beef. Also, there has been more medical research that has shown beef is a healthy food item. New research puts lean beef on par with lean chicken and fish with regard to its influence on blood cholesterol levels and shows that conjugated linoleic acid (CLA)—a natural fat found in ruminant animals (beef and milk products)—contains properties that protect against cancer, diabetes, and heart disease.
"Also, over the last 16 months, by-product values have been improving and have supported cattle prices. Compared to a year ago, by-products have consistently added about $1 per hundredweight to slaughter steer and heifer prices," the livestock marketing economist reported.
Probably the most important factor contributing to the increasing demand for beef, in Davis's opinion, has been the rapid growth of "heat and serve" deli beef products.
"In 1998, we at Texas A&M University asked the Texas Beef Council to prepare a display of `heat and serve' deli beef products. They could only come up with three products. This past year, however, the Texas Beef Council exhibited nearly 200 such products. These products, unlike the old TV dinners, are very high quality products prepared from the most tender muscles in the chucks and rounds of the beef carcass," said Davis, adding that the convenient deli beef products fit the needs of young to middle aged consumers, especially in homes where both the husband and wife are actively employed and time is limited. "So the good news is that consumers are getting what they desire—a wholesome, convenient product—and cattlemen are experiencing better, stronger prices for their cattle and calves."
Could anything spoil the good news for beef producers?
"If we were to have a food scare on beef, it could hurt in terms of consumer market avoidance. That would be one thing," said Davis. "The other thing that could hurt, is if 2001 corn prices go up. But barring those two things, it looks like we're in for a very good year."
