Several Factors Will Influence Cattle Prices in 2006

Increased cattle numbers and other factors at home and abroad likely mean prices will decline over the next few years.

Published on: Jun 26, 2006

Cattle numbers continue to increase in 2006, representing the second straight year of herd growth, University of Nebraska-Lincoln agricultural economists say.

Increased cattle numbers and other factors at home and abroad likely mean prices will decline over the next few years from 2005's peak levels, says Dillon Feuz, agriculture marketing specialist at UNL's Panhandle Research and Extension Center at Scottsbluff.

There were 97.1 million total head of cattle in the U.S. as of Jan. 1, 2006, Feuz says. That is a 1.78% increase from 2005 cattle numbers and a 2.33% increase from 2004.

The total number of beef cows that have calved is at 33.3 million head, an increase of 1% over 2005. Beef replacement heifers were at 5.9 million head, a 4% increase over the prior year.

"That is the most beef heifers held for replacement since 1997," Feuz says.

Calf prices typically decline each year inventory increases and then increase once herd liquidation begins, Feuz says.

"Fed cattle prices typically decline even a year or two past the beginning of the liquidation phase, as the initial liquidation actually places more pounds of beef on the market," he says.

So far, the current cattle cycle, which started in January 2004, looks very much like the previous cattle cycle, he says. The growth in herd numbers for the last three cattle cycles lasted six, four and eight years. This means cattle producers can plan on about six years of herd growth and depressed prices.

"Growth would end in four years, with the largest inventory in January 2010," Feuz says. "However, there are some factors that may alter the length of the current cycle."

Drought will play a major factor. Continuing drought across the southern plains is depleting wheat pasture grazing and drought continues in some areas of the northern plains and Rocky Mountain states, says Darrell Mark, UNL livestock marketing specialist.

"There hasn't been wheat pasture for a lot of southern stocker operators this winter and a lot of feeder cattle have had to be placed in feedlots," Mark says. This will put more cattle into slaughter and contribute even more to the seasonal increase in slaughter numbers throughout the summer months.

In 2003, nearly 10% of U.S. beef production was exported. Last year's beef exports were only 2.8% of production due to BSE-related trade bans. But the weakness in foreign demand was partly offset by increased domestic demand in the beginning of the year. In 2006, domestic demand will struggle to remain constant as poultry prices decrease and high protein diets fade, Mark says.

International concerns about avian influenza mean slower international poultry trade and more chicken on the U.S. market with lower prices, Mark says.

Broiler exports dropped, but beef exports haven't gone up either. This put more inexpensive poultry on the U.S. domestic market to compete with higher priced red meats, Mark says.

Carcass weights are up on cattle, hogs and broilers, Mark says.

"So, all three livestock are now contributing to more commercial production through both higher carcass weights and additional slaughter numbers," he says.

International trade also will influence cattle prices.

"If exports expand fairly rapidly over the next couple of years, prices for beef and fed cattle likely will not decline as much, and this may encourage continued expansion," Feuz says. "However, if the U.S. is
slow to regain export markets in the Pacific Rim then lower beef and fed cattle prices may discourage further herd expansion after this year or next."

Also, a new Farm Bill will come out next year and changes in farm policy could alter feed costs, trading competitiveness, milk prices, etc., all of which could impact profits in the cattle industry and alter herd
expansion plans.  

"Predicting changes in cow herd numbers over the next several years is risky given the number of factors that can change and will likely change," Feuz says. "Long-term predictions should be viewed with caution, but most likely will go down over the next few years. Keep this in mind as you make decisions on buying and raising replacement heifers and/or buying or selling additional cows."

Feuz expects 2006 prices to be near 2004 price levels: Fed cattle could average about $85 per hundredweight, 750-pound steers in Nebraska could average about $112 per hundredweight and 550-pound steers in Nebraska could average about $127 per hundredweight.

Prices for calves and yearlings likely will be above those levels for the first half of the year, but then will decline late in the third quarter and into the fourth quarter.

Prices may decline to the low $70 per hundredweight range for fed cattle in four to five years with 750-pound steers in the low $90 per hundredweight range and prices for 550-pound steer calves near $100 per hundredweight, Feuz says.