The U.S. Cattle Cycle and Calf Prices
The U.S. Cattle Cycle and Calf Prices Gary Brester MSU Department of Agricultural Economics and Economics Montana Nutrition Conference 2015 Bozeman, MT April 28, 2015 1 OUTLINE 1. World Beef Markets 2. U.S. Beef Markets 3. U.S. Cattle Cycle 4. Long Term Calf Price Outlook 5. Questions 2 Brester: FSA Training Ag Marketing 1 OUTLINE 1. World Beef Markets 2. U.S. Beef Markets 3. U.S. Cattle Cycle 4. Long Term Calf Price Outlook 5. Questions 3 World Beef Production Million Metric Tons 60 58 56 54 52 50 48 46 44 42 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 40 Production (Carcass Weight) Source: Foreign Agricultural Service Brester: FSA Training Ag Marketing 4 2 World Beef Production Million Metric Tons 60 58 56 54 52 50 48 46 44 42 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 40 Production (Carcass Weight) Source: Foreign Agricultural Service 5 World Beef Production Million Metric Tons 60 58 56 54 52 50 48 46 44 42 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 40 Production (Carcass Weight) Source: Foreign Agricultural Service Brester: FSA Training Ag Marketing 6 3 World Cattle Inventories Million Head 1,200 1,150 1,100 1,050 1,000 950 900 850 800 750 2014 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 1972 1970 700 World Cattle Inventory Source: Foreign Agricultural Service 7 Cattle Inventory Increases/Beef Production Million Head Million Metric Tons 100 4 50 2 0 0 Inventory Source: Foreign Agricultural Service Brester: FSA Training Ag Marketing Production United States 6 Russia 150 India 8 EU-27 200 Mexico 10 China 250 Canada 12 Brazil 300 Australia 14 Argentina 350 8 4 India, Brazil, China Cattle Inventories Million Head India Brazil 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 340 320 300 280 260 240 220 200 180 160 140 120 100 China Source: Foreign Agricultural Service 9 U.S., Argentina, Australia, EU-27, Canada Inventories Million Head 100 90 80 70 60 50 40 30 20 U.S. Argentina Source: Foreign Agricultural Service Brester: FSA Training Ag Marketing EU-27 Canada 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 10 Australia 10 5 OUTLINE 1. World Beef Markets 2. U.S. Beef Markets 3. U.S. Cattle Cycle 4. Long Term Calf Price Outlook 5. Questions 11 “US Beef Production” vs. Cattle Inventory (January 1) Bil. Pounds 28 26 24 22 20 18 16 Mil. Head 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 135 125 115 105 95 85 Cattle Inventory "U.S. Beef Production" 2015 January 1 Inventory equals 89.8 million head (increase from 2014 inventory of 88.5 million head) (2014 calf crop was the lowest since 1950, 33.90 million head) Source: Livestock Marketing Information Center & MSU Agricultural Marketing Policy Center 12 Brester: FSA Training Ag Marketing 6 Productivity of U.S. Beef Cow Breeding Herd Lbs Carcass Weight Pounds Per Beef Cow, Annual 750 700 650 600 550 500 450 2011 2013 2009 2005 2007 2003 1999 2001 1995 1997 1993 1989 1991 1987 1983 1985 1979 1981 1977 1973 1975 1971 400 Source: Livestock Marketing Information Center & MSU Agricultural Marketing Policy Center 13 Nominal Fed And Feeder Cattle Prices Fed Cattle 2010 2012 2014 Feeder Cattle Source: Livestock Marketing Information Center & MSU Agricultural Marketing Policy Center Brester: FSA Training Ag Marketing 2008 2002 2004 2006 1994 1996 1998 2000 1992 1986 1988 1990 1978 1980 1982 1984 1976 1970 1972 1974 $/cwt 300 250 200 150 100 50 0 Nebraska Direct 1100-1300 lb Choice Steers Montana 500-600 lb Steers 14 7 Nominal Fed And Feeder Cattle Prices Fed Cattle 2010 2012 2014 2008 2002 2004 2006 1994 1996 1998 2000 1992 1986 1988 1990 1978 1980 1982 1984 1976 1970 1972 1974 $/cwt 300 250 200 150 100 50 0 Nebraska Direct 1100-1300 lb Choice Steers Montana 500-600 lb Steers Feeder Cattle Source: Livestock Marketing Information Center & MSU Agricultural Marketing Policy Center 15 Nominal Fed And Feeder Cattle Prices Fed Cattle 2010 2012 2014 Feeder Cattle Source: Livestock Marketing Information Center & MSU Agricultural Marketing Policy Center Brester: FSA Training Ag Marketing 2008 2002 2004 2006 1994 1996 1998 2000 1992 1986 1988 1990 1978 1980 1982 1984 1976 1970 1972 1974 $/cwt 300 250 200 150 100 50 0 Nebraska Direct 1100-1300 lb Choice Steers Montana 500-600 lb Steers 16 8 Real Fed And Feeder Cattle Prices Nebraska Direct 1100-1300 lb Choice Steers Montana 500-600 lb Steers $/cwt 300 270 240 210 180 150 120 90 Real Fed Cattle 2014 2010 2012 2008 2006 2002 2004 2000 1998 1994 1996 1992 1988 1990 1986 1984 1980 1982 1978 1976 1972 1974 1970 60 Real Feeder Cattle 17 Source: Livestock Marketing Information Center (2014=100) U.S. Beef, Veal and Live Animal Imports Annual, Billion Lbs, Carcass Weight Basis Billion Lbs 5 4 3 2 1 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 0 Total Canada Mexico Source: Livestock Marketing Information Center & MSU Agricultural Marketing Policy Center Brester: FSA Training Ag Marketing 18 9 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Billion Pounds Carcass Weight U.S. Beef Imports By Source Australia New Zealand Canada/Mex Other Source: Livestock Marketing Information Center 19 U.S. Beef, Veal and Live Animal Exports Annual, Billion Lbs, Carcass Weight Basis Billion Lbs 3.0 2.5 2.0 1.5 1.0 0.5 *CUSTA **NAFTA 2014 Total Source: Livestock Marketing Information Center & MSU Agricultural Marketing Policy Center Brester: FSA Training Ag Marketing 2012 2010 2008 2006 2004 2002 2000 1989 1996 1992 1994** 1990 1986 1988* 1984 1982 1980 1978 1976 1974 0.0 20 10 Value of U.S. Beef, Veal and Live Animal, By-Product Net Imports/Exports Million $ 4,000 3,000 2,000 1,000 0 -1,000 2012 2009 2006 2003 2000 1997 1991 1988* **NAFTA 1994** *CUSTA 1985 1982 -2,000 Total Source: Livestock Marketing Information Center & MSU Agricultural Marketing Policy Center 21 OUTLINE 1. World Beef Markets 2. U.S. Beef Markets 3. U.S. Cattle Cycle 4. Long Term Calf Price Outlook 5. Questions 22 Brester: FSA Training Ag Marketing 11 U.S. Cattle Inventory (January 1) 150 Million Head 125 100 75 50 25 1867 1873 1879 1885 1891 1897 1903 1909 1915 1921 1927 1933 1939 1945 1951 1957 1963 1969 1975 1981 1987 1993 1999 2005 2011 0 Cattle Inventory (million head) Source: Livestock Marketing Information Center & MSU Agricultural Marketing Policy Center 23 Demand Has Increased 1. Domestic demand is a little stronger over the past several years a. Of course, per capita consumption is lower (not a demand decline) b. It has to be because we don’t have as much around c. Price allocates 2. Foreign demand is increasing a. Increasing incomes b. Increasing population c. These are slow effects 24 Brester: FSA Training Ag Marketing 12 Supply Has Declined 1. Cost factors a. Drought b. Feed costs c. Grazing availability d. Labor costs 2. Alternative production factors a. Crop profitability b. Crop insurance c. Age 3. Structural factors a. Full time versus part time b. Larger cows 25 OUTLINE 1. World Beef Markets 2. U.S. Beef Markets 3. U.S. Cattle Cycle 4. Long Term Calf Price Outlook 5. Questions 26 Brester: FSA Training Ag Marketing 13 Motivational Icons of the Past 1. William Shakespeare 2. Clara Peller 3. Meat Loaf 4. Black Eyed Peas 5. General Eric Shinseki 6. Returning to one of my favorites 27 American Philosopher 28 Brester: FSA Training Ag Marketing 14 American Philosopher Yogi Berra 29 29 It’s Déjà Vu All Over Again! American Philosopher Yogi Berra 30 30 Brester: FSA Training Ag Marketing 15 Real Fed And Feeder Cattle Prices Nebraska Direct 1100-1300 lb Choice Steers Montana 500-600 lb Steers $/cwt 300 270 240 210 180 150 120 90 Real Fed Cattle 2014 2010 2012 2008 2006 2002 2004 2000 1998 1994 1996 1992 1988 1990 1986 1984 1980 1982 1978 1976 1972 1974 1970 60 Real Feeder Cattle 31 Source: Livestock Marketing Information Center (2014=100) Real Beef Calf Prices Dollars Per Hundredweight 300 250 200 150 100 50 1910 1914 1918 1922 1926 1930 1934 1938 1942 1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 0 Real Calf Price (2014 Dollars) Source: Livestock Marketing Information Center (2014=100) Brester: FSA Training Ag Marketing Average Price Trend 32 16 Déjà vu All Over Again? 1. If demand is not impacted by disease scares or lower incomes a. Cattle prices will remain strong until beef supplies increase 2. We have seen these types of prices on 3 occasions a. 1951, 1973, 1979 33 Previous Price Spikes 1. Real price spikes occurred in 1951, 1973, 1979 a. All were years of low cattle numbers Followed herd liquidation Start of herd expansion b. But no more so than some other years in the cycle 34 Brester: FSA Training Ag Marketing 17 1951 ($243/cwt) 1. Initiation of the Korean War a. Concerns of food security following terrible supply disruptions during World War II b. Potential for a new World War c. Countries purchased agricultural commodities as a hedge 2. By 1954, calf prices were below the long run average of $139/cwt 35 1973 ($240/cwt) 1. 1972 Russian grain deal 2. Reductions in Peruvian fish meal 3. Declines in world production of other food and feed grains 4. Beef sector was expanding a. Hog sector had contracted b. OPEC quadrupled oil prices 5. High prices were short-lived as demand declined a. By 1975, prices were only $95/cwt b. Rebuilding peaked in 1975 at a record level of cattle inventory 36 Brester: FSA Training Ag Marketing 18 1979 ($243/cwt) 1. 20 million head decline in cattle inventory (15%) between 1975 and 1978 Herd rebuilding began 1979 OPEC oil shock increased costs and hurt demand Rebuilding lasted only two years before liquidation occurred By 1982, prices ($132/cwt) were below long-run average 2. 3. 4. 5. 37 Real Beef Calf Prices Dollars Per Hundredweight 300 250 200 150 100 50 1910 1914 1918 1922 1926 1930 1934 1938 1942 1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 0 Real Calf Price (2014 Dollars) Source: Livestock Marketing Information Center (2014=100) Brester: FSA Training Ag Marketing Average Price Trend 38 19 Real Beef Calf Prices Dollars Per Hundredweight 300 250 200 150 100 50 1910 1914 1918 1922 1926 1930 1934 1938 1942 1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 0 Real Calf Price (2014 Dollars) Average Price Trend Source: Livestock Marketing Information Center (2014=100) 39 Real Beef Calf Prices Dollars Per Hundredweight 300 250 200 150 100 50 1910 1914 1918 1922 1926 1930 1934 1938 1942 1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 0 Real Calf Price (2014 Dollars) Source: Livestock Marketing Information Center (2014=100) Brester: FSA Training Ag Marketing Trend 40 20 Real Beef Calf Prices Dollars Per Hundredweight 300 250 200 150 100 50 1910 1914 1918 1922 1926 1930 1934 1938 1942 1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 0 Real Calf Price (2014 Dollars) Source: Livestock Marketing Information Center (2014=100) Trend 41 2014 ($255/cwt) 1. 2. 3. 8 million head decline in cattle inventory (10%) between 2007 and 2014 a. Production declining b. World production is low c. Demand is solid Will the supply side shocks noted above reverse themselves? Will substantial herd rebuilding occur in the U.S.? 42 a. Elsewhere? Brester: FSA Training Ag Marketing 21 Questions? 43 Brester: FSA Training Ag Marketing 22
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