Livestock Report
By Glenn Grimes

Cattle
As expected, USDA’s July 1 cattle inventory confirmed the belief that producers were reducing the size of the U.S. cowherd. The total number of cattle and calves on farms and ranches July 1 was down 0.4 percent from a year earlier. The total number of cows and heifers that had calved was down 0.2 percent from 2006. The beef cowherd was down 0.3 percent, but the dairy cow herd was the same as a year ago.

The number of beef heifers being held for cowherd replacements was down 6 percent but the number of dairy heifers being held for herd replacements was up 3 percent from 12 months earlier.

The 2007 calf crop was estimated to be down 0.4 percent from a year ago. The number of young cattle outside feedlots not being held for herd replacements was up 0.3 percent on July 1 compared to the same date in 2006.

Cow slaughter for January to June was up 13.1 percent compared to these months last year and calf slaughter was up 17.9 percent. If corn prices remain high, producers are likely to continue reducing the cowherd at a slow rate through the remainder of 2007.

The number of cattle and calves on feed in the United States on July 1 was estimated to be down 1.6 percent from the same date in 2006. The number of cattle and calves on feed in feedlots with a one-time capacity of 1,000 head or more was down 1.4 percent from a year ago. July was the fifth consecutive month the number of cattle on feed was below a year earlier.

Placement data point to fewer fed cattle being marketed during the second half of 2007. The futures market for live cattle shows prices in the mid to upper $90s for late 2007 and early 2008.

The futures market price for feeder cattle rallied $10 per cwt. between late June and late July after USDA reported the large planting of corn—92 million acres plus. In late July, 400 to 500 lb. steers calves at Oklahoma City were selling for about the same price as a year earlier and 700 to 800 lb. yearling steers were $2 to $3 per cwt. below July 2006. These feeder cattle prices are probably strong enough to stop the decline in the size of the cattle herd—assuming good pastures, ranges, and forage in the beef cattle areas of the country.

Demand for beef at the U.S. consumer level increased 0.6 percent in January to June compared to a year ago. The demand for all other meats except broilers was also up. Pork was up 0.3 percent and turkey was up 4.0 percent, but demand for young chickens or broilers was down 3.2 percent.

Our demand index for live fed cattle showed good growth at 3.5 percent for January to June over these months in 2006. A portion of the stronger demand for fed cattle was due to increased beef exports. U.S. beef exports for January to May 2007 were up 15.8 percent from this period a year ago, increasing to all of our customers except two.

Beef exports to Mexico were down 13.9 percent. Exports to Taiwan were down 4.1 percent from last year.

Hogs
Hog production continues to become more concentrated. In 2006, 2.9 percent of U.S. hog producers produced 85 percent of our hogs. Only 14 percent of U.S. hog producers produced 99 percent of all the hogs produced in the United States. Producers continue to benefit from economies of scale, so the odds are high that the industry will continue to concentrate for the next several years.

In a university study of hog producers conducted in January of this year, all sizes of producers indicated they plan to increase hog production through 2009. However, in a similar study conducted in January 2003, producers indicated they planned to increase production between 2003 and 2006, yet only the large producers (those marketing more than 10,000 head per year) actually increased their market share.

The 2006 study also revealed that smaller producers produced a much higher percentage of their corn needs than did mega producers. Producers who marketed less than 10,000 head annually raised about 75 percent of the corn they fed to their hogs. Producers marketing 10,000 to 500,000 head per year produced 56 to 57 percent of their corn needs, while those marketing more than 500,000 head or more produced only 2 percent of their corn needs. Current high corn prices will increase the competitiveness of the smaller producers.

Domestic pork production was up 2 percent in January to June 2007 compared to a year ago. Fortunately, consumer demand for pork during these months was up 0.3 percent and demand for live hogs was up 2.9 percent. Therefore, even with increased production, prices for live hogs were up 8.3 percent from a year earlier. Nearly all of the increase in our demand index for live hogs came from the domestic market. The retail price of pork was up 2 percent and the total marketing margin was down slightly.

As of June, we had enjoyed 12 months of growth in the demand for live hogs. Unfortunately, how long this growth will continue is not very predictable. With increased pork production expected for the remainder of 2007 and likely into 2008, demand will need to grow substantially or producers, on average, will likely see some red ink during the fourth quarter of 2007.

In mid-July, there were reports that China’s pork production was down due to disease. It was rumored that China may be in the market for substantial quantities of pork. The only market that can supply the amount of pork mentioned is North America—Canada and the United States.

Feeder pig prices in mid-July were below a year ago but have held strong even with high corn prices. The potential for a corn crop large enough to build stocks for the next marketing year is good news for feeder pig producers.

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