In 1995 the U.S. cattle industry was liquidating cattle and the future looked very dark. The situation in 1996 didn't help producers as grain stocks declined and grain prices hit all time records. Southwestern cow-calf producers also were caught in a severe drought. Feeder cattle and calf prices dropped over $30 per hundredweight and producers' profit margins experienced deep negative ink. Deep cuts were made in the cow herd and heifer retention dropped sharply. Beef production rose to 25.4 billion pounds, second only to the 25.7 billion pounds produced in 1976, when the cattle inventory was at a record high of 132 million head and the industry was experiencing the largest liquidation in history.

In January of 1997 feeder cattle and calf prices rebounded sharply. Calf prices rose as much as $30 per hundredweight through the spring. Grain prices were on the decline and producer profit margins appeared to be improving. Was the cycle broken? Did we hit the bottom of the cycle and we are now seeing the rebounding phase?

The cycle does appear to be broken and profitable times should be around for the next few years for most cow-calf producers. How can we make this statement? The 1996 and 1997 January 1 cattle inventory estimates suggested producers were holding back a large number of heifers for summer breeding season and replacement females. However, in both years, conditions deteriorated and a large number of these heifers were marketed as feeders instead. The October Cattle on Feed Report suggests that this phenomena is still occurring. Twenty-one percent more heifers were on feed in October 1997 than a year earlier. In addition, heifer slaughter for the first nine months of 1997 was at a near-record pace, second only to the major liquidation years of the mid 1970's.

Beef cow slaughter rates have peaked in 1997. It is expected that cow slaughter rates will continue to decline over the next few years as industry profits improve and producers again attempt to expand their herd size. But, without larger numbers of heifers being retained and bred, total beef cow numbers will not increase very rapidly---and the annual calf crop also will be affected (heifers saved for replacement individuals in 1997 will not affect the calf crop until 1999).

Another point to consider. Supplies of feeder cattle outside feedlots and available for placements this fall and in 1998 are already beginning to tighten. Supplies are estimated to be down 7 percent for last year. Importation of feeder cattle will increase somewhat, but Canadian and Mexican supplies are also very tight.

Supplies of feeder cattle and calves will continue to tighten over the next few years due to a smaller expected calf crop. Calf prices will rise, profit margins will expand, herd size will increase and heifer retention will again rise. This will, in the short-run, decrease the number of calves available for feedlot placement.

Finally, beef production over the next few years should decline by 2 to 5 percent. Any improvement in feed prices will likely reduce the supply of beef further as producers seek to increase longer term revenues by herd expansion and the retention of heifers. This will improve the short-term prices received for calves and further strengthen short-term profits.

The drawback to lower feed prices is that it not only affects beef producers but it also will favor pork and poultry producers' profit margins. So, as beef supplies are declining in the short-term in response to lower feed margins, pork and poultry producers will likely expand their market share by also increasing production and driving the market price of their products lower.

In summary, beef producers should look forward to better times in 1998. Lower beef production, higher prices and improved profit margins should brighten for producers everywhere. The downside of this joy is that it is likely that our "protein competitor" also will be enjoying larger revenues, higher profit margins, and stealing more market share away from the beef producer.

THE CLEMSON UNIVERSITY COOPERATIVE EXTENSION SERVICE OFFERS ITS PROGRAMS TO PEOPLE OF ALL AGES, REGARDLESS OF RACE, COLOR, SEX, RELIGION, NATIONAL ORIGIN, OR HANDICAP AND IS AN EQUAL OPPORTUNITY EMPLOYER.
COOPERATIVE EXTENSION WORK IN AGRICULTURE AND HOME ECONOMICS--STATE OF SOUTH CAROLINA, CLEMSON UNIVERSITY, U.S. DEPARTMENT OF AGRICULTURE, AND SOUTH CAROLINA COUNTIES COOPERATING.

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updated 11/26/97