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Texas Agriculture Archive

October 3, 2003

High Times in Cow Country!

How long will the good times roll?

By Lana Robinson
Field Editor

Every segment of the beef cattle industry is riding the current wave of record-high prices, with clear sailing ahead, according to beef experts.

"We've worked our way into one of the best markets that I've seen in my 40 years of livestock marketing," said Dr. Ernie Davis, Texas Cooperative Extension livestock marketing economist.

Typically, prices soften in the fall with the influx of calf crops at sale barns and the large numbers of fed cattle usually available in feedlots. Davis said this fall season may go down in the record books as the best ever. The week of Sept. 6, choice slaughter steers averaged $84.94 per hundredweight–33 percent higher than 2002. The all-time record high price is $85.38 per cwt. set the week of March 27, 1993.

"We blew right through that," Davis reported Sept. 22. "Believe this or not, last week (week of Sept 14), the average price for fed cattle was $89.90 per hundredweight. They were paying anywhere from $88 to $90 for a fed steer!"

Short supplies of fed cattle is fueling the prices, he said.

"What we have now are essentially green cattle going out. The slaughter weights are down and the production per head is dropping, too. That's reducing our total beef production because we are pulling those cattle forward sooner," he explained. "Feedlots are getting well over $150 profit per head. Packers are making money because their wholesale prices are high. Retailers are making money because of near-record retail prices and consumer demand remains strong. But the ones who are really in the driver's seat are the cow/calf producers selling the stock."

Inventories are low, but that alone is not responsible for the good prices.

"The big factor is we don't have the heavier weights, with Canada shut down. They keep thinking that any minute, they're going to open those up and let them come in, so the mindset is `I'd better market as many as I can to get a better price.' They kept thinking they'd let those out before the first of July, then it was the first of August and the first of September..."

The case of mad cow disease in Canada earlier this year closed U.S. imports of fresh beef and live cattle. That event has played a major role in pushing up beef prices as well, Davis said.

"When Canada closed its doors, everybody else closed their doors to Canada, and our exports jumped because we picked up those customers," he said. "We are producing less, getting less in, and shipping more out. At the same time, we have strong demand for beef. That's primarily because of the increased demand for beef loins relative to pork loins. Pork [producers] have gotten their loins so lean and so dry, they've lost some of the quality."

Davis noted that Canada has also reduced their numbers on feed and beef production.

"They're still not geared up to ship us the quantity," he said, adding, "What we've got coming from Canada is boneless beef, not fresh product, not the choice fed carcasses from choice fed cattle we usually get. The boneless goes into processing, so there is not any pressure for the fresh product."

The U.S. was supposed to begin accepting major shipments of Canadian beef under a new segregation system. Representatives of the two countries reached an agreement in principle Sept. 4 that allows Canada to slaughter animals under 30 months of age in the same facility as older animals.

"They had to slow that down. The plants killed different classes of cattle and couldn't guarantee the animals would be below 30 months of age, so that hasn't materialized," said Davis.

Continued cow herd liquidation due to drought has further decreased the nation's beef cow population. For much of 2003, Davis said there has been no signs of cow herd expansion as the heifer-steer slaughter ratio continues to be high. Heifers being held for beef cow replacement on July 1 was at 4.6 million, while feedlot supplies are 5 percent less than a year ago at an estimated 39.3 million head, down 200,000 head from 2002, Davis said.

"There is going to be some big demand in the future for replacement heifers. But if you can get $500 to $600 for a weaned heifer, how are you going to keep her? Later on, we should see some pretty good prices for replacement heifers," Davis predicted.

High demand for beef has also helped escalate prices.

"We don't see any evidence that consumers are backing away from beef," Davis reported. "Retail sales were $373.50 per hundredweight in August, which was up 2.2 percent from January and up 11.7 percent from August a year ago. Average beef prices for January through August were up 8.4 percent over the same period in 2002. Fed cattle prices for July through August were up 17.1 percent from a year earlier..."

This is in sharp contrast to 2001 after the Sept. 11 terrorist attacks.

"Basically that event kept people at home, and we had stockpiles of beef in the grocery stores," he said.

Pork consumption is less than a year ago, while poultry production will be more than first estimated, jumping from 32.3 billion pounds to 32.9 billion pounds in 2003.

With feedlots operating at 5 percent less capacity than a year ago, Davis suggested that feedlot operators may be scrambling to find feeder cattle this fall.

"Many thought it would be relatively easy to find replacement cattle because of the drought we were having in Kansas and Oklahoma. There was concern there wouldn't be any wheat for the stocker cattle buyers," Davis said. "But the recent rains have perked up the growing season. The stocker boys will be bidding those calves away from the feedlots. The feedlots are going to have competition for those supply of calves."

Davis doesn't see a big dip in prices in the near future.

"Right now, we're looking at exorbitant prices for calves," he said.

Davis said prices for 400-to 500-pound weight calves are well over $1 a pound, and 700-800 pound weight feeder steers are approaching $1 a pound.

"Feedlots have had to give exorbitant prices for these cattle," he said. "December closeout forecast for feedlots is $83 per cwt. If somebody would have told me that a month ago I would have said there is no way in the world that the feedlots can pay that kind of money."

The high prices, however, do put certain industry players in a difficult spot, he suggested.

"Feeder cattle going into the feedlots in September, placed right now at $88 per cwt., may tighten things down. Feedlots, and stocker operators trying to place cattle out there right now, are in a precarious position in the future because of costs. Just a little bit of a dip can put them into losses," he said.