March Livestock Report

Livestock report
By Glenn Grimes

Cattle
The demand for all meat at the consumer level for January through November was below this period last year. Our beef demand index for this period was down 2.4 percent, pork demand was down 3.7 percent, broiler demand was down 6.8 percent, and turkey demand was down 2.2 percent.

The demand for live animals is the good news. For the first 11 months of 2006, the demand index for live fed cattle was up 3.9 percent and for live hogs was up 0.1 percent from this period in 2005.

Corn prices above $3 per bushel finally impacted the weight of the cattle placed on feed. During November, only the 800 lb. and heavier weight group had larger placements, up 15.9 percent from a year ago. The number placed weighing less than 600 lbs. was down 15.9 percent, the number weighing 600 to 699 lbs. was down 13.1 percent, and the number weighing 700 to 799 lbs. was down 13.1 percent.

The number of cattle on feed reached a peak for the year on Sept. 1 at 9.86 percent larger than Sept.1, 2005. On Oct. 1 the increase was only 8.6 percent compared to Oct. 1, 2005; on Nov. 1 it was 4.1 percent; and on Dec. 1 it was 2.11 percent. The slowing increase in the number of cattle on feed relative to the same months of 2005 was due in part to cash corn prices near $3.50 per bushel.

Higher corn prices in late 2006 also added 15 to 16 cents per pound to the cost of gain for cattle in feedlots compared to 2005.

Higher corn prices also resulted in substantially lower feeder cattle prices. In the week before Christmas, 400 to 500 lb. steer calves at Oklahoma City were $20 to $25 per cwt. lower than a year ago and 700 to 800 lb. steers were $13 to $15 per cwt. lower than a year ago.

Total cow slaughter for the year 2006 through Dec. 16 was up 10.6 percent from this period in 2005. As this material is being prepared (January), the odds favor at least a decline in the rate of growth in the cow herd and growth may have stopped completely. The major reason for the increase in cow slaughter has been the dry weather in much of beef cow country and the resulting tight forage supplies and high forage prices. Nearly 30 percent of the Jan. 1, 2006, beef cow inventory was in Texas, Oklahoma and Missouri. Texas and Oklahoma were very dry in 2006 and Missouri was substantially drier than normal.

Beef exports for January to October increased 78.5 percent in 2006 compared to this period of 2005, but they were still 56.4 percent below these months in 2003. Beef imports for these first 10 months of 2006 were down 14.9 percent from a year ago. Net beef imports as a percent of production declined from 12.27 percent in 2005 to 7.58 percent in 2006. This is the major reason our demand index for live cattle showed a gain of 3.9 percent in 2006 compared to 2005, while our U.S. consumer demand index for beef showed a loss for this period.

Prices for both feeder cattle and fed cattle are expected to continue strong compared to history. However, feeder cattle prices in 2007 are expected to be below 2006, especially in the first half of the year, due to higher feed prices.

Pork
Our pork demand index for this period was down 3.7 percent, beef demand was down 2.4 percent, broiler demand was down 6.8 percent, and turkey demand was down 2.2 percent.

The demand for live animals continues to be good news. For the first 11 months of 2006, the demand index for live hogs was up 0.1 percent and for live fed cattle was up 3.9 percent from 2005.

Pork exports for January to October 2006 were up 11.1 percent from a year ago. All of our major customers (except Japan) purchased more pork from us in the first 10 months of 2006 than in these months of 2005. Pork imports for the first 10 months of 2006 were down 1.6 percent from 2005. U.S. net pork exports as a percent of production increased to 9.25 percent in 2006 from 7.93 percent in 2005. This is one of the major reasons why live hog demand was up in 2006 while consumer demand for pork was down.

The Dec. 1 Hogs and Pigs Report for 2006 showed larger inventories than a year ago, even with the high-priced feed. At the end of November, U.S. hog producers set a new record of 34 consecutive months of profits for the average-cost producer according to data from Iowa State University. The larger number of hogs on farms Dec. 1 was due to this record long period of profit. However, gilt and sow slaughter data indicate that in November and December, producers may have stopped increasing the breeding herd and may be reducing it. Yet, because the production segment of the hog industry has large fixed investments, a very big decline in the U.S. hog herd is not expected.

There are major differences in producers’ expectations of how long corn prices are likely to stay high. In the past, high corn prices were usually due to a short corn crop and did not stay high long. This time, high prices due to ethanol demand are likely to last several years.There is a chance that the expected longer time period for high corn prices may influence the decisions of hog producers who also produce corn. Will producers who raise both hogs and corn decide to reduce or exit hog production because they can meet their income needs by producing corn only?

If we can maintain the strong live hog demand of late 2006 through 2007, live hog prices are expected to average about the same to a couple of dollars less than in 2006.

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