LIVESTOCK REPORT 
By Glenn Grimes

CATTLE
Beef demand at the consumer level for the first 8 months of 2006 was down 3.8 percent compared to this period in 2005, based on calculations using preliminary 2006 data. However, our demand index for live cattle for these 8 months was up 3.7 percent compared to a year ago. Even better news is that our demand index for live fed cattle for June to August 2006 was up 5.1 percent compared to this period in 2005. Part of the reason for the increase in live cattle demand was the increase in U.S. beef exports and decline in beef imports. Live cattle demand was also helped by the growth in U.S. population. The consumer demand index was impacted less by these factors because it is a per capita calculation involving only beef consumed in the United States.

The U.S. fed cattle inventory continued to increase. On Sept. 1, 2006, the number of cattle on feed was up 9.9 percent above September 2005. The number of cattle placed on feed during August was up 15.4 percent, and the number of fed cattle marketed during August was up 2.2 percent from August 2005.

A portion of the large increase in the number of cattle placed on feed during August was due to short pastures and ranges caused by the drought in much of beef cow country. During July and August, a major portion of the cattle placed on feed were light weight. The number weighing less than 600 lbs. was up 52.8 percent. The number weighing between 600 and 699 lbs. was up 15.9 percent. The number weighing between 700 and 799 lbs. was up 2 percent, and the number weighing over 800 lbs. was up 2.2 percent.

Cow slaughter from Jan. 1, 2006, through the week ending Sept. 23 was up 9.6 percent compared to this period in 2005. Dairy cow slaughter was up 3.4 percent and beef cow slaughter was up 16.2 percent. For the 4-week period ending Sept. 23, total cow slaughter was up 19.7 percent with dairy cow slaughter up 13.2 percent and beef cow slaughter up 26.2 percent compared to this period a year ago. Most of the increase in cow slaughter, especially beef cow slaughter, was probably due to short pastures and ranges resulting from dry weather.

Most, if not all, of the growth in the cow herd that started in 2005 probably will stop in 2006. However, if rainfall becomes adequate and strong feeder cattle prices continue, the cow herd will increase.

The growth in demand for corn to produce ethanol is expected to increase the price of corn. How will $3 per bushel corn impact the cattle industry? This price is not expected to be as negative to beef and dairy as it will be for hogs and chickens because distillers grain can be used in beef and dairy rations better than in hog or chicken rations.
Feeder cattle prices are expected to continue strong for the foreseeable future, but higher corn prices will be negative to feeder cattle prices. 

SWINE
Hog producers continue to use restraint in building the breeding herd. On Sept. 1, 2006, the total hog herd was up 1.4 percent with the breeding herd up 1.8 percent and the market herd up 1.3 percent compared to this date a year ago. Most of the growth in the breeding herd was in the Corn Belt.

By the time you read this article, average cost hog producers will probably have set a new record for consecutive months of profit. The record before this year was 33 consecutive months. If hog slaughter is close to expectations based on the September report and we can maintain most of the live hog demand producers have enjoyed during the summer of 2006, hog prices should remain above costs through the summer of 2007. If profits continue through November 2006, a new record of 34 consecutive months of profits will be enjoyed by hog producers.

The available data on the retail price of pork continues to show relatively weak demand for pork at the consumer level. However, our demand index for live hogs was up 0.8 percent in the June to August period of 2006 compared to a year ago and appears to have held through September and early October.

It now looks like the hog industry will need to learn to live with corn prices of around $3 per bushel because of extra demand created for ethanol. The past year’s corn price has been about $2 per bushel. A $1 per bushel increase in corn price will increase the cost of producing hogs by about $6 to $7 per hundred pounds of live weight. This will require the North American hog industry to downsize unless demand for pork can be increased, which does not seem likely with the current supplies of competing meats.

If the elasticity of demand remains close to the average of the last10 years, the herd will only need to be reduced 4 or 5 percent to maintain profitability. However, if the long-term elasticity of demand for live hogs averages that of the past 50 years, the herd will probably need to be reduced 7 to 9 percent to maintain profitability for the average cost producer.