Expect Another Year of High Cattle Prices

Several more years of favorable prices as cow slaughter remains low and heifer retention high.

Published on: Jan 31, 2006

The cattle industry can expect another year of high prices as cow slaughter remains low and heifer retention high, says Chris Hurt, Purdue University Extension marketing specialist.

"Cow-calf producers will be well rewarded with very profitable calf prices which are likely to continue to fan the desire for greater expansion," says Hurt. "The current expansion is expected to extend until around 2010 with the largest beef production on this cycle coming in 2010 to 2012."

Another year of favorable returns is expected for brood cow producers, he adds. Larger beef and dairy herds mean growing beef supplies and lower prices for finished cattle and calves, especially with the unfortunate interruption of exports to Asia. Challenges for the year include the restoration of these exports as well as drought concerns in the central and southern Plains.

"Beef producers continued to expand the breeding herd for the second year," says Hurt. "Beef cow numbers increased by 1% during 2005 after a small rise in 2004. The total number of cows increased by 338,000 head and the increase was concentrated in the western Corn Belt, where Missouri increased by 115,000 cows and Iowa by 40,000."

Increases were also noted in the southern and central Plains states. Oklahoma producers increased by 60,000 head, Texas increased by 43,000 head, and Colorado, Nebraska, and Kansas increased by 97,000 cows. Beef cow numbers in the eastern Corn Belt remained stable as a region as Illinois dropped 14,000 cows, Indiana dropped 8,000 cows, and Ohio increased 3,000 cows.

Hurt says that even more expansion can be expected in 2006. The number of beef heifers being retained for replacements to go back into breeding herds was up by nearly 4%. "This rate of retention should allow the beef cow herd to increase by about 1% over the coming year," he says.

Dairy cow numbers increased by 0.6% in response to strong milk prices in 2005 when the U.S. milk price averaged $15.14 per hundredweight. Regionally, the largest increases in total cows were in the Pacific Northwest (41,000); southern Plains (29,000); the West (29,000), and the eastern Corn Belt (19,000).

Changes in individual states in the eastern Corn Belt included Ohio (7,000); Michigan (5,000); Wisconsin (5,000); Indiana (3,000); and Illinois (down 1,000).

"Much like the beef herd, heifer retention for herd replacements was up 4% and will allow an increase in the number of milk cows by nearly 1% this year," says Hurt.

The 2006 calf crop is expected to be larger by about 0.7%. Hurt says that this modest increase means that calves and feeder cattle will remain in short supply throughout the year.

"Beef supplies last year were up only 0.5% with the head count down about 1% and weights nearly 2% greater," he says. "For 2006, slaughter numbers are expected to be up about 2% with weights 1 to 2% higher. This means beef supplies are expected to rise by about 3.5% for the year."

Hurt wondered if cattle prices can maintain the record highs of 2005 when Nebraska finished steers averaged $87.30 and Oklahoma City 500-to-550-pound steer calves reached $132 per hundredweight.

"With supplies growing by 3.5% this year, the answer should be 'no,'" he says. "Finished steer prices should average closer to $85 and steer calf prices around $125. However, one unresolved question at this point is the Asian market. If the Asian markets could be reopened by the second quarter of 2006, it is possible for cattle and calf prices to approach last year's record levels."

Another factor for the cattle industry to watch closely this year will be the drought currently in the southern Plains. "The National Weather Service is calling for intensification in that area and broadening of the drought into the central Plains and western Corn Belt by this spring," Hurt says.