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									                             Iowa Farm Outlook

July 29, 2005                                 Ames, Iowa                                        Econ. Info. 1915

                                 July Cattle Inventory Summary

The July 1 US Cattle Inventory released July 22 reflects a continued expansion in both the beef and dairy
herds. All US cattle numbers are up 0.9 percent at 104.5 million head. Table 1 contains the July
inventories and the percent change from last year. Beef cow inventories are at 33.8 million head, up 0.7
percent. Beef heifer retention continues to be active with 5 million head destined to enter the breeding
herd, which is 4.2 percent more than last year. Meanwhile, dairy cattle numbers are also on the rise.
Dairy cow inventories are up 0.6 percent and dairy heifer retention is up 2.8 percent from last year,
eventually that will put more dairy bred calves into the feeder cattle market.

Table 1. July 1, 2005 Cattle Inventory
                                               % change     1000 Head
                                1000 Head      from 2004      Change
 All cattle                       104,500           0.9%          900
 All cows                          42,800           0.7%          300
 Beef cows                         33,750           0.7%          250
 Dairy cows                          9,050          0.6%            50
 All heifers                       16,200           1.6%          250
 Beef replacement heifers            5,000          4.2%          200
 Dairy replacement heifers           3,700          2.8%          100
 Feeder Heifers                      7,500         -0.7%           -50
 Steers                            14,400           1.4%          200
 Bulls                               2,100          2.4%            50
 Calves under 500 lbs.             29,000           0.3%          100
 Calf crop                         37,800           0.3%          100
 Cattle on feed                    12,000           1.7%          200

It is not a surprise that all classes of cattle continue to have increasing inventories except for feeder
heifers. However, changes in cattle inventories were not as great as some analysts were predicting prior
to the release of the report, and came in on the conservative side of most forecasts. Expansion did occur
in all predicted areas. Growth in beef cow numbers and heifer retention has been a few years in coming
but did occur as expected. Figure 1 illustrates how the decline in beef cow inventories and heifer
retention over the past ten years has reversed itself this year. The accepted explanation is that cow-calf
producers are increasing their herds and expressing some of the optimism they have developed while
being paid generous calf and feeder cattle prices in the past two years.
Figure 1. Beef Cow Inventory, July 1994-2004



  1,000 Head






                       1994   1995   1996   1997   1998   1999   2000   2001   2002   2003   2004   2005

The 2005 calf crop is expected to be around 37.8 million head. So far 27.45 million live calf births have
occurred with an expected 10.35 more calves to be born this year. Compared to 2004, 175 thousand more
calves are expected to be born this year, which is a 0.3 percent increase but still 100 thousand short of the
number born in 2003. With the increasing cow herd, calf crops are expected to continue to increase for
the next several years.

The turn in cattle number first became apparent in the January cattle inventory, although heifer retention
has been increasing for the past two years. Not all the current expansion is the result of more heifers
being added. Figure 2 contains a graph of heifer and cow slaughter in the past decade. As the industry
cycle first started scaling down, the national herd cow and heifer slaughter was up, but as fewer cull cows
were available the slaughter slumped off. Now with the inventory increase cow slaughter has tipped off
even more. Figure 4 compares the number of heifers on feed with the number of beef replacements. The
quantity of July heifers on feed has been dropping since 2001, and replacement heifer retention has been
up over a year ago.
Figure 2. Cow and Heifer Slaughter, Aug-July, 1994-2005



 1,000 Head




                          1994   1995   1996   1997   1998    1999   2000     2001    2002    2003   2004    2005

During the year thus far, steer and heifer slaughter has seen some fluctuation, most of which is expected
and seasonal with the national holidays. Figure 3 is a graph of steer, heifer, and cow slaughter this year.
Weeks in which major holidays fall usually have a shortened work week and slaughter volumes are
reduced. Steer slaughter had been around or below 300 thousand head per week in the first quarter, has
bumped up to around 350 thousand head per week since May. Heifer slaughter has been constant to even
slightly decreasing over the first part of 2005. Beef cow slaughter has been steady since January at about
50 thousand head per week, while Dairy cow slaughter has dropped by a quarter.

Figure 3. Steer, Heifer, Beef Cow, and Dairy Cow Slaughter; Jan-Jul 2005


              300                   Steers

 1,000 Head



                                                                                  Beef Cows

                                                                                     Dairy Cows
                    Jan           Feb          Mar           Apr            May          Jun           Jul
Cattle on Feed
The number of heifers on feed is distinctly lower while steer numbers are up. Feeder heifers currently on
feed number 3.5 million head, a 4.6 percent decrease from July of last year and a 5.8 percent drop from
2003. On the other hand, steers on feed are on the up swing. Currently, 6.8 million head of steers are in
feedlots, or 6.7 percent more than last year and 11.4 percent more than two years ago. Although it is very
small portion of the cattle on feed, bull and cow numbers are a quarter greater than last year.

Table 2. July Cattle on Feed
                                     2003         2004             2005      % change
                                   1000 Head    1000 Head        1000 Head   from 2004
 Steers and Steer Calves             6111         6379             6805          6.7%
 Heifers and Heifer Calves           3751         3701             3532         -4.6%
 Bulls and Cows                       61           52               65         25.0%

Figure 4. Beef Replacement Heifer Inventory and Heifers on Feed, July 1994-2005



              5500                              Beef Replacement
 1,000 Head



                                               Heifers on Feed


                     1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Cattle feeder availability continues to be a question for feedlot managers. Supplies have been short for
some time now, and feeder cattle prices have made feedlot margins tight. Feeders can see some relief
coming in the increasing national herd and the recently reopened Canadian border. The feeder cattle
supply is slightly, 0.1 percent, greater this year than last. The number of feeder heifers, steers, and all
calves under 500 pounds is still just under 40 million head. Feeder cattle availability in July over the past
ten years has been dropping until this year (see Figure 5). However it could take some time for the cow
inventories to rebuild enough make any dramatic increases in the supply of domestically born feeder
cattle. In the sort run, under current demand levels, light cattle numbers will remain tight for the rest of
the year. Importation of Canadian feeder cattle could add to feeder cattle supplies, but how many cattle
will be imported and the impact it will have on US feeder cattle prices has yet to be seen.
Figure 5. Feeder Cattle Availability, July1994-2005




  1,000 Head







                       1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Range Conditions
Range conditions on the whole have not been as good as they were in 2004. Currently, almost four times
as many cattle are in states where 40 percent of the pastures are considered to be in fair condition at best.
Also, at this time last year over 80 percent of cattle were in states with at least good pasture conditions.
The poor grazing conditions in some areas could lead to calves being sold sooner or at a lower weight.

Table 3. Range and Pasture Conditions, Cow location according to state pasture condition, July

                Beef cows in states with 40% of more of      Beef cows in states with 40% of more of
                pasture and rangeland in FAIR to POOR        pasture and rangeland in GOOD to
                condition.                                   EXCELLENT condition.
                                 Cows           % of Total                      Cows          % of Total
                     2004     1,000 Head                            2004     1,000 Head
                 7/4/2004         3578           10.92%         7/4/2004       24346.2          74.28%
                7/11/2004         2351            7.17%        7/11/2004       28339.2          86.47%
                7/18/2004         2355            7.19%        7/18/2004       27128.2          82.77%
                     2005                                           2005
                 7/3/2005         9870           29.94%         7/3/2005       18176.7          55.13%
                7/10/2005        10395           31.53%        7/10/2005       18475.7          56.04%
                7/17/2005         9704           29.43%        7/17/2005        18311           55.54%
Canadian Border Situation
The Canadian border is now open to live Canadian cattle that are 30 months old or younger. Under the
UDSA importation rule, feeder cattle can enter the US but can only be fed at one feedlot before being
slaughtered. Some fed cattle have been shipped to US packing plants, but not a sizeable volume. Feeder
cattle imports are also picking up as more Canadian producers get their paper work in order to meet
export requirements. How many cattle will come from Canada has yet to be seen. Canadian feedlots may
want to stay in the competition now that fed cattle prices in Canada have jumped. Also Mexico partially
filled the void created with the border closure, so Canada may reclaim some of its former feeder cattle

                                                                                            Shane Ellis
                       Grain Market Update: Crop Conditions, Lagging
                           Exports & Minimal Asian Soybean Rust

Grain prices have been extremely volatile in recent weeks as the market reacted to dramatic changes in
weather forecasts in short periods of time and a gradual deterioration in U.S. crop prospects. When
forecasts showed hot, dry weather ahead, cash price strength has been tempered some by lagging export
sales and increased farmer marketings in the western Corn Belt. In Iowa and other states west of the
Mississippi River, the old-crop and harvest delivery basis has widened out to levels not seen in several
years. Central Iowa elevators at this writing are bidding about 50 cents per bushel under near-by futures for
immediate delivery. Some new-crop bids in the same area are as much as 55 cents under December futures.
In contrast, the central Iowa soybean basis has been slightly stronger than normal—especially on old-crop
beans. With two or three more good rains across the Midwest between now and the third week of August,
the corn basis could be pressured even more as farmers and elevators attempt to make storage space
available for the new crop.

For the next several weeks, weather across the Midwest and Mid-South will continue to be the dominant
focus of the grain markets. Corn and soybean crops west of the Mississippi generally look quite good,
except for parts of Missouri, and extreme east central and southeastern Iowa. Trade analyst projections of
U.S. corn yields range from about 133 to 140 bushels per acre. If USDA’s August 12 crop forecast is at or
near the top of this range, the corn market would have significant down-side risk into harvest—perhaps
as much as 30 to 35 cents per bushel. If the USDA forecast is at the low end of this range, the corn market
would have moderate short-term up-side potential, with some risk of modestly lower prices during the
harvest season. Our forecasting model shows a potential yield of about 138 bushels per acre.

Soybean Rust Concerns Fading
Since late February, soybean futures have reflected a substantial risk premium to allow for possible Asian
rust damage to the crop. Rust concerns are beginning to fade out of the market, but are being partially
replaced by concern over the National Weather Service prediction for a hotter and drier than normal August.
So far, Asian rust has been found in only a few locations in a few counties in Alabama, Florida, Georgia,
and one county in extreme southeastern Mississippi. The first three of these states produced 15.7 million
bushels of soybeans last year. For comparison, Kossuth county in Iowa last year produced 10.3 million
bushels. Mississippi produced about 62 million bushels. Since rust so far has been found in only a few
sites in a few counties in these states, it is not perceived as a serious threat to the crop. Analysts generally
are taking the view that if rust is not widespread within the next two or three weeks, its impact on this
year’s yields will be minimal.

Tables 1 and 2 show corn and soybean crop condition ratings as of July 24 for major producing states.
Illinois continues to be the biggest problem area for this year’s crops, despite significant rains in the
southern part of the state earlier this month and rainfall in some northern counties in the last week. Rainfall
has been more generous in the last 10 days in Wisconsin, Michigan, Indiana, and Ohio. However, earlier
hot, dry weather likely has significantly reduced yield potential in these states as well as in Missouri and
parts of eastern Iowa. Historically, by late July, corn crop condition ratings, planting dates, and a trend
variable have been good indicators of the U.S. corn yield potential. However, soybean yields are strongly
influenced by August rainfall, and the late July condition ratings don’t provide much precision in estimating
the U.S. average yield. For example, in late July of 2003, the soybean crop in major states was rated 68%
good to excellent. The U.S. average yield that year was an estimated 33.9 bushels per acre. In late July
2004, 68% of the major-states soybean crop was again rated good to excellent. The 2004 U.S. average
soybean yield was a record 42.5 bushels per acre.
                Table 1. Corn Crop Condition                                                                                                                                                                                               Table 2. Soybean Crop Condition
                 Week Ending Jul 24, 2005                                                                                                                                                                                                     Week Ending Jul 24, 2005
             --------------------------------------                                                                                                                                                                                   --------------------------------------
                      VP : P : F : G : EX                                                                                                                                                                                                State : VP : P : F : G : EX
             --------------------------------------                                                                                                                                                                                   --------------------------------------
                               Percent                                                                                                                                                                                                                    Percent
             CO      : 0      4    18    46    32                                                                                                                                                                                              :
             IL      : 21    35    31    12     1                                                                                                                                                                                     AR       : 8     22    36    29     5
             IN      : 5     14    35    39     7                                                                                                                                                                                     IL       : 8     25    44    21     2
             IA      : 2      8    23    46    21                                                                                                                                                                                     IN       : 4     12    33    44     7
             KS      : 2      9    30    51     8                                                                                                                                                                                     IA       : 2      8    23    49    18
             KY      : 2      7    30    40    21                                                                                                                                                                                     KS       : 1      6    34    51     8
             MI      : 5      9    22    46    18                                                                                                                                                                                     KY       : 2      3    19    57    19
             MN      : 2      7    20    52    19                                                                                                                                                                                     LA       : 6     11    35    43     5
             MO      : 18    19    29    29     5                                                                                                                                                                                     MI       : 4      7    27    44    18
             NE      : 1      6    18    51    24                                                                                                                                                                                     MN       : 2      7    27    50    14
             NC      : 1      6    20    53    20                                                                                                                                                                                     MS       : 1      6    18    64    11
             ND      : 2      8    19    54    17                                                                                                                                                                                     MO       : 11    22    40    23     4
             OH      : 6     13    34    38     9                                                                                                                                                                                     NE       : 3     12    29    46    10
                                                                                                                                                                                                                                      NC       : 0      9    21    62     8
             PA      : 2      6    21    45    26
                                                                                                                                                                                                                                      ND       : 1      8    22    50    19
             SD      : 1      4    25    52    18
                                                                                                                                                                                                                                      OH       : 3     11    33    41    12
             TN      : 3      7    22    53    15
                                                                                                                                                                                                                                      SD       : 1      4    21    56    18
             TX      : 12    19    30    31     8                                                                                                                                                                                     TN       : 1      5    19    54    21
             WI      : 10    19    31    32     8                                                                                                                                                                                     WI       : 7     15    32    36    10
             18 Sates: 7     14    26    39    14                                                                                                                                                                                     18 Sates: 4      12    30    43    11
             Prev Wk : 6     13    26    42    13                                                                                                                                                                                     Prev Wk : 4      12    31    43    10
             Prev Yr : 1      5    17    52    25                                                                                                                                                                                     Prev Yr : 2       6    23    51    18

             China Makes Minor Exchange Rate Adjustment
             China in late July announced that it was moving away from a long-standing fixed relationship of its currency
             to the dollar, and will re-value it by 2 percent. Its government also indicated the Chinese currency will be
             linked to a basket of Asian currencies plus the euro and the dollar. In recent weeks, the dollar has
                                                                        strengthened relative to many of these currencies.
                 Figure 1. Chinese Currency Exchange                    One additional change is that China indicates it will
                            Rate Vs. U.S. Dollar                        allow the yuan (also called the renminbi) to fluctuate
                                                                        in a narrow range above and below its desired
             8                                                          exchange rate. These changes may very slightly
                                                                        lower the cost of shipping U.S. goods into China
                                                                        and may slightly reduce the competitiveness of its

                                                                        exports. However, the changes are expected to be
                                                                        so small that impacts on commodity prices will be
                                                                        difficult to detect. Figure 1 shows the change in
                                                                        China’s exchange rate.
                                                                                                                                                                                                                                     Chinese Swine Flu

                                                                                                                                                                                                                                     In another development, government reports from
     Data Source: Pacific Exchange Rate &Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada                                                                                                                one province in southern China indicate 31 people
                                                                                                                                                                                                                                     have died from a swine-flu type of illness. The
source of the illness reportedly was from handling infected hogs and eating the meat. So far, the problem
does not appear to be widespread enough to affect Chinese pork consumption and feed demand. However, it
will bear watching closely.

Ocean Freight Rates Decline
Despite continued high fuel costs, ocean freight rates for bulk commodities have declined moderately in the
last few months. Weakness in the rates seems to suggest that demand for bulk commodities has slackened
some. One might expect the lower freight rates to help make U.S. grain more competitive in international
markets. However, weakness now appears to be about offset by strength of the U.S. dollar in the last three

North China Rainfall
Rainfall this summer in the North China Plain (just north of Korea) appears to be the heaviest in several
years. This area is a major corn and soybean producing region, and weather this summer will influence the
amount of corn China has to export in the year ahead. If intra-EC exports are excluded, China is usually the
No. 2 or No. 3 corn exporter in the world. For the last two years, speculation has intensified that China

might shift from being a major corn exporter to a significant importer. Whether that happens will depend
heavily on China’s corn yields and weather. In the four years ending in 2003, China’s average corn yields
flattened out at about 75 bushels per acre. That pattern followed a strong 36-year upward trend in yields.
Flattening out of yields appeared to be weather-related to a considerable extent. Its 2004 yields were a little
better than the previous four years, but still sharply below the long-run trend. Satellite imagery indicates
crop conditions in parts of the area are better this summer than last year as shown in the chart above.
Conditions in the rest of China’s major corn/soybean area appear to approximately match conditions a year
earlier. This information can be viewed by clicking on our web site, , and then clicking on “Foreign Crop Conditions” in the upper
left hand column. When the menu comes up, click on “Crop Explorer”. Then click on northeast China on
the global map. Next, click on satellite imagery (at the top of the screen), for a map showing changes vs. a
year earlier. Clicking again on the map brings up charts showing cumulative vegetative conditions vs. last
year and normal for each province, as shown in the chart above. To view precipitation data in chart form,
click on the initial precipitation map that first appears when you click on northeast China. Using a similar
procedure, soil moisture by province can be viewed in chart form.

Export Sales Update
Through July 21, cumulative U.S. corn exports since the start of the marketing year (9/1/05) and outstanding
unshipped sales continued to lag slightly behind USDA balance sheet projections. The cumulative total is
down 6.3% from a year earlier, while a 3.8% decline is projected for the marketing year. The difference is
not large, but if it continues through the end of august, U.S. corn exports for the marketing year will be
about 45 to 50 million bushels lower than currently indicated. Changes in sales and shipments for the top
two U.S. corn export markets, Japan and Mexico, were -0.8% and -0.7% respectively vs. a year earlier. The
largest percentage changes for significant markets were South Korea, 43%, Malaysia, -96%, and Indonesia,
-88%. These markets likely were supplied with Chinese corn. U.S. corn exports and sales to the EU fell
92% from an already very low level a year earlier. U.S. exports to EU were mainly to the islands of Malta
and Cyprus. New-crop U.S. corn sales to all destinations totaled a very minor 42 million bushels vs. zero a
year earlier.

Cumulative U.S. soybean exports and outstanding unshipped sales to all destinations were up 23.8% from
the very depressed level of a year earlier. While that is a strong increase, USDA projects a 26.1% increase
for the marketing year. If the current sales pattern continues through the end of August, cumulative U.S.
exports would be about 20 million bushels below a year earlier. That in turn could push 8/31/05 ending
carryover stocks slightly above the psychologically negative 300 million bushel level.

The increase in U.S. soybean exports and sales was broad-based, but there were a few exceptions.
Shipments and sales to South Korea were down 27% from a year earlier, along with a 19% decrease to
Malaysia. New-crop soybean export sales totaled 53 million bushels. A year ago, new-crop sales were zero
as foreign buyers waited for lower prices expected from a bumper 2004 crop.

                                                                                            Robert Wisner
                                   Milk Production Jumps 5.4%

The 23 reporting dairy states had a big jump in milk production during June 05, up 5.4%. The May 05
milk production was revised to 4.6%, up 0.2%. Cow numbers rose by 47,000 head compared to one year
earlier and 9,000 more than May 05. Second quarter US milk production was up 4.1% with average cow
numbers up by 34,000.

Iowa milk production rose as well, +1.9%. The rise came from an additional 1,000 cows and 90 pounds
more milk per cow. Cheese production in Iowa totaled 13,499 million pounds during May 05, up 0.2%
from the previous month but -3.1% from one year ago. SD was 1.102 million pounds ahead of Iowa in
cheese production for May 05.

All but one of the 23 reporting states, Missouri -3.2%, had more milk for June 05 than one year ago.
Idaho had the largest increase, up 11.7%, by adding 27,000 cows and 90 pounds of milk per cow
compared to June 04. CO had the second largest increase, 10.6%, with 2000 more cows and a big increase
in milk per cow, 145 pounds. Texas had the third largest increase, 9.6%, but only from more milk per
cow, +150, since cow numbers remained constant from one year ago. CA milk production rose 5.1% with
another 33,000 cows and 55 more pounds of milk per cow. NY milk production rose 4.3% because milk
per cow rose 5.2% due to more milk per cow, 85 pounds too, while dairy cow numbers dropped by 6000.
MN milk production was only 2.9% higher; this low rate of increase was due to 15,000 fewer dairy cows
and an undersized 60 pound per cow milk increase. NM had a rather small 3.9% increase due to 3000
fewer cows and an average 85 pounds of milk per cow increase.

Second quarter US milk production was reported July 18 also, up 4.1%; first quarter milk production was
revised to up 1.1%. Average US dairy cow numbers rose by 34,000 cows during the second quarter. NE
and SD cow numbers were flat at 60,000 and 81,000 respectively. NE milk rose 4.9% and SD milk +7.6%
higher for the 1st quarter. KS had been a growth area for dairy operations, but during the first quarter 05
cow numbers dropped by 3000 and another 2000 during the second quarter 05. KS first and second
quarter milk production was 1.3 and 4% higher respectively. Other states milk totals were: ND -1000
cows and -0.7% milk, MT +1000 cow and +8% milk and IL -4000 cows with -0.8% milk.

Commercial disappearance, a euphemism for demand, is hinting at problems, maybe. Jan-April total
disappearance was down 0.6%, only other cheese varieties (Italian and Hispanic) were up 2.9% from the
same time period one year ago. Other product categories were down however; butter -5.9%, American
cheeses -1.1% and beverage milk -0.9%. Dairy product prices are lower as a group, -1.4$ from one year
ago. Cheese prices were slightly higher however, 0.3%

Cheese output is increasing seasonally and with strong milk production, increases may take place. Cheese
was up 4%, much of the increase due to mozzarella, +6.3%. But nonfat dry milk was off by 19%. If strong
milk production increases continue, milk will head to the dryer for NFDM. Most of the NFDM production
is in CA and SW US.

So far, stocks of dairy products are in pretty good shape. As of June 30, butter stocks were -4% from one
year ago and 2% more than the prior month. Cheese stocks were 3% lower than one year ago and 1%
higher than May 05.

The CME gave its opinion of the June “Milk Production” report. For the week of July 18, cash prices
dropped 10.75 cents per pound for block and barrel cheese. Butter was off 4 cents per pound. Many of the
nearby months for Class III futures contracts had large declines after the release of the June 05 “Milk
Production” report. But, except for Aug 05, most of these losses were regained by the end of the week.

The “Cold Storage” report gave good support to the wisdom of these price gains. Dairy product stocks are
in good shape. American style cheese stocks did not expand during June, only the 4th time in the past 35
years and the 1st since 1999.

Heat may be a major reason for the weak stocks gains as well as traders reactions to the June ‘Milk
Production’ report. Reports from CA and SW US point to poorer milk per cow as heat sets in. The
Midwest is experiencing the heat as well, although with much higher humidity. The NE US has not had
heat problems yet.

USDA is projecting 2005 3rd quarter Class III prices to average below $14.05, lower than the CME
futures contract closes on July 22. Fourth quarter projections are $12.75-13.45, again significantly below
the CME closes.

Feed prices may also be a part of traders thinking. As feed prices increase, due to dry weather in the
eastern Cornbelt, traders may be expecting milk per cow to weaken. Corn and soybean meal prices have
increased in the past few weeks on the CBT due to weather concerns. These higher prices will increase
milk production costs.

The opening of the Canadian border will not affect dairy replacement numbers. Dairy cattle were not
included in the USDA rule that has been disputed in court recently. US dairy heifer numbers did show an
increase of 3% on July 1. This number tends to more volatile than and not as reliable as the January 1
cattle inventory.

No direction can be said at this time to be appearing for milk prices. There are enough bullish factors to
outweigh the strong June “Milk Production” report from USDA.

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