With high-protein, low-carbohydrate diets fueling the demand for beef, and a fast-paced society favoring the convenience of heat-and-serve beef products, cattle producers are selling just about anything on the hoof to take advantage of record-high prices.
"The whole market trend right now or the psychology is ‘let's rush them to market,'" said Ernie Davis, Texas Cooperative Extension livestock marketing economist.
Record-high cattle prices in 2003 continue as experts say this year will go down as the best ever. Average steer prices a week ago were at $1.04 a pound, while finished steer prices hit a record $115 per hundredweight during October.
To take advantage of the high prices, cow-calf producers have been opting to send lightweight calves to market sooner, further decreasing the nation's beef supply. Even packers are pulling feeder cattle "green" from the feedlots to meet supply demands.
"Our placements in feedlots [for this time of year] are expected to be 10 percent higher at least from a year ago," said Jim Robb, director of the Livestock Marketing Information Center in Denver. "Clearly, this is a very unique set of market circumstances."
The million-dollar question on the minds of those in the beef industry is how long will the high prices last? According to Davis and Robb, prices will remain historically high on into the first quarter of 2004, but not at the record levels seen in October.
Several key factors are fueling the current market:
- All eyes are on Canada and when it will be allowed to resume trading of live cattle across its border. "That's at least four months down the line," Davis estimates. "As early as the market could open is in March."
- Attention is being paid to feedlots. According to Robb, the feedlots "hold all of the cards.
“They don't need to market animals until the packers come to them," he said. "That will go on for three or four more weeks. I suspect by the time we get to December, we're trading lower fed cattle prices still at historically high levels, but they are getting into the 90s mostly as opposed to the $1 (per pound) range. That's still the highest prices we've ever posted barring this year or this quarter."
- The price of corn. Analysts say there has been a record U.S. corn crop this year. With prices hovering around $2 a bushel, many feedlots aren't too worried about the price of corn. However, a poor corn crop in 2004 could change the price of cattle.
"If you have a short corn crop, most of the adjustment will be on the cattle side, which means cow-calf prices have to adjust accordingly," Robb said.
- Expect the nation's beef cow inventory to be tighter by Jan. 1. Davis and Robb expect fewer cows will be slaughtered in 2004 because they will be worth more due to limited beef cow numbers.
Davis said, "We're still trying to set the long-term stage for the cattle cycle. We've delayed this cycle another year."
While beef producers are enjoying the high prices, the liquidation of cattle across the United States continues, and will again cut into supplies heading into 2004. With the exception of Texas, which has been rebuilding cattle inventories the past three years, the Midwest has experienced drought conditions for the last two years, preventing rebuilding efforts.
"When we go through this year's liquidating numbers, that will be a 14-year cattle cycle," Davis noted. A normal cattle cycle is approximately a 10-year period in which the number of U.S. beef cattle is alternatively expanded and reduced over several consecutive years.
Generally, low prices occur when cattle numbers (or beef supplies) are high, precipitating several years of herd liquidation. As cattle numbers decline, prices gradually begin to rise, causing cattle producers to begin adding cattle to their herds. The cycle is relatively long due to the time lag between when a cow-calf operator decides to expand a herd, and when those additional animals reach slaughter weight.
"This is now the longest liquidation phase in the cattle cycle since we have had relevant records," Robb said. "It goes back to the late 1880s, but they didn't have good records then. The key to keeping us from rebuilding in 2004 is if we have drought in cattle country. Every year since 1996, we have had some cattle states affected by drought."
With drought and fewer cattle numbers, beef producers are managing to still place cattle in feedlots.
"How are we doing that? No. 1, we are still using a large percentage of heifers off each year's calf crop," Davis said. "In fact, heifer slaughter has made up nearly 40 percent of federally inspected steer and heifer slaughter for the past few years. The other thing is we are pulling cattle younger and lighter. Our slaughter ages have been pushed down.
"We were slaughtering cattle at 16 months to 17 months, now we're looking at 13 months to 14 months on these cattle. The feedlots are trying to keep up their numbers. That's been the trend the whole year."
Blair Fannin is a writer for Texas A&M University.