Continued Shrinkable In Cattle
Herd Portends Good Price Year

The cattle market has improved significantly during the past four years, especially last year when prices for feeder calves reached record highs and prices for most other categories reached eight-year highs. It appears that the outlook for the rest of this year is relatively bright as the size of the U.S. herd continues to decrease.

All cattle and calves in the U.S. as of January 1 totaled 97.309 million head, .9 percent below the 98.198 million head on January 1, 2000, and 1.8 percent below the 99.115 million head two years ago. A continuation of cattle liquidation that began in 1996 was anticipated, especially as a result of the severe drouth in the South Central U.S. that continued through most of 2000.

While it appears that prices for calves and feeders will likely remain strong as the herd size continues to trend downward, the market improvement for finished weights, which began last fall, may have peaked and may stall. Futures prices for live cattle on the Chicago Mercantile Exchange for nearby delivery, which reached the low $80s for the first time since Fall '92, have dropped over the past two weeks.

Analysts attribute part of the recent strong market improvement to a reduction in red meat production, including beef, coupled with increased and continued strong demand for beef. Commercial red meat production for the United States totaled 3.62 billion pounds in December 2000, down six percent from the 3.86 billion pounds produced in December 1999. Beef production during December, at two billion pounds, was five percent below the previous year. Cattle slaughter during December totaled 2.72 million head, down five percent from the same period in 1999. The average live weight was down one pound from the previous year, at 1224 pounds.

January through December 2000 red meat production was 46.1 billion pounds, just below the comparable figure a year earlier. Accumulated beef production was one percent higher than last year, veal was down four percent, pork was down two percent, and lamb and mutton were down five percent.

Rising retail prices, concerns about mad cow disease, other health issues and a possibly weakening economy, however, are creating uncertainty about continued strong demand for beef.

The increased beef demand hypothesis will be tested soon as beef supplies will increase through the first half of the year. Cattle placements are up and, while USDA is projecting a slight decrease in red meat and total beef production in 2001, ample supplies of relatively inexpensive feed may contribute to increased slaughter weights. However, serious winter storms have placed a cap on slaughter weights over the past few weeks.

USDA's January 19, 2001 cattle on feed report indicated that cattle and calves in feedlots with a capacity of 1000 or more head (59 percent of the total inventory) totaled 11.8 million head on January 1, up three percent from January 1, 2000, and eleven percent above January 1, 1999.

Placements in feedlots during December 2000 totaled 1.7 million head, up three percent from December 1999 and up 12 percent from December 1998.

The January 1 placements combined with higher placements during December 2000 will increase beef production, at least through the first half of 2001, and will test the recent beef market strength.

Although the 2000 calf crop, at 38.621 million head, is down 175,000 head from a 38.796 million-head calf crop in 1999 and down 1.2 million head from a calf crop of 39.823 in 1996 when the current liquidation began, feeder cattle supplies appear adequate to meet current beef production levels.

The total size of the herd continues trending down, but there are some indications of a slowdown in liquidation and that herd rebuilding may be underway. The size of the breeding herd has been reduced significantly since 1996. The inventory of all cows and heifers that have calved, at 42.603 million head on January 1, was down .4 percent from an inventory of 42.759 million on January 1, 2000. Beef cows at 33.4 million head were down .5 percent from January 1, 2000 and one percent below January 1, 1999. Beef replacement heifers, however, at 5.888 million, were up 1.5 percent from January 1, 2000 and up one percent from 5.535 million head on January 1, 1999.

Other heifers (feedlot heifers), at 10.14 million head, were down .1 percent from an adjusted inventory of 10.147 million head (initially reported as 10.17 million on January 1, 2000) and down .3 percent from 10.17 million head on January 1, 1999. Fewer heifers for slaughter reflects a larger inventory of replacement heifers and tends to indicate that the rate of the liquidation may be slowing down and rebuilding of the national cattle herd is not far away.