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Cattle Outlook &
Risk Management
James Mintert, Ph.D.
Professor
&
Extension Ag. Economist, Livestock Marketing
Department of Agricultural Economics
Kansas State University
K-State Research & Extension
For Updated Livestock Marketing
Information Visit The
K-State Livestock & Meat Marketing
Web Site
www.agecon.ksu.edu/livestock
K-State Research & Extension
K-State Research & Extension
Prices Dropped From ‘01 to ‘02-Why?
Kansas Cattle Prices
500-600 Lb. & Slaughter Steer Prices
110
100
90
Price ($/cwt.)
80
70
60
50 W. Kansas Slaughter Steers
W. Kansas 500-600 pound steers
40
30
75 77 79 81 83 85 87 89 91 93 95 97 99 01
Year
Source: USDA & LMIC
K-State Research & Extension
What Caused The Price Decline?
• Large Competing Meat Supplies
• Poultry Ban
• Large Beef Supplies
K-State Research & Extension
Domestic Meat Supplies Were Record Large In ‘02
Per Capita Retail Meat Consumption
Beef, Pork, Poultry, Lamb & Veal
230
220
210
Pounds
200
190
180
170
160
60 65 70 75 80 85 90 95 00
Source: USDA & LMIC Year
2002 LMIC Forecast
K-State Research & Extension
Liquidation Has Been Underway for 7 Years
Percent Change in U.S. Cattle Inventory.
1925-2002
10
8
6
4
2
Percent
0
-2
-4
-6
-8
-10
25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 00
Year
Source: USDA & K-State Research & Extension
2002 Growth Rate Estimated
K-State Research & Extension
U.S. Herd Is Still Shrinking
U.S. Cattle Inventory
January 1, 1925-2002
140
Current January 1, 2002 = 96.7 Million Head .
130
inventory is 0.6% Less Than .
on Jan. 1, 2001 .
120
about 27%
110
smaller than in
Million Head
100
90
1975
80
70
60
50
25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 00
Source: USDA
Year
K-State Research & Extension
Average Cattle Cycle Is About 10 Years
But Current Cycle Is Entering Its 14th Year
Cattle On Farms By Cycle
Total Inventory, 50 States .
135
1967-1979
Cattle Inventory (Million Head)
125 1979-1990
115
105
1958-1967
95
85
1949-1958
1990-2003
75
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Cycle Year
Source: USDA & K-State Research & Extension
K-State Research & Extension
Drought Produced Another Round of Modest
Liquidation in 2002
Estimated Kansas Cow-Calf Returns .
300
250
200
.
150
$'s Per Cow
100
50
0
-50
-100
75 77 79 81 83 85 87 89 91 93 95 97 99 01
Source: K-State Research & Extension
Returns ABove Variable Costs Year
2002 Forecast
K-State Research & Extension
Pastures Are Still Suffering
US RANGE AND PASTURE CONDITION
Percent Percent Poor and Very Poor, Weekly
60
50
Avg.
40 1996-
00
30 2001
20 2002
10
0
May Jul Sep
Source: USDA & LMIC
K-State Research & Extension
K-State Research & Extension
Total Cow Slaughter Changed Little In ‘02
Most of the “Drought” Cows Did Not Go to Slaughter
Total F.I. Cow Slaughter
11
10
9
Million Head
8
7
6
5
4
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02
Source: USDA Year
K-State Research & Extension
A Smaller Herd Doesn’t Necessarily
Mean Smaller Production
Beef Production vs. Cattle Inventory
1950 - 2002
30 140
25 130
Beef Production (Bill. Lbs.)
Cattle Inventory (Mill. Hd.)
120
20
110
15
100
10 Beef Production
Cattle Inventory 90
5 80
0 70
50 55 60 65 70 75 80 85 90 95 00
Source: USDA Year
K-State Research & Extension
Heavier Carcass Weights Tell The Story
Commercial Cattle Carcass Weights
775
750 Actual Carcass Weights
Trend
725
700
Pounds
675
650
625
600
575
70 73 76 79 82 85 88 91 94 97 00
Year
Source: USDA & K-State Research & Extension
K-State Research & Extension
Cattle On Feed Well Below A Year Ago
K-State Research & Extension
Smaller Placements Last Fall Mean Tighter
Supplies This Winter
K-State Research & Extension
Slaughter Was Up In ‘02
But Should Decline In ‘03
Annual Commercial Cattle Slaughter .
44
43
42
.
41
40
39
38
Million Head
37
36
35
34
33
32
31
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02
Year
Source: USDA & K-State Research & Extension
K-State Research & Extension
Record Large Beef Production In ‘02
But Will Decline In ‘03
Commercial Beef Production .
28
27
26
.
25
Billion Pounds
24
23
22
21
20
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02
Year
Source: USDA & K-State Research & Extension
K-State Research & Extension
The
Beef
Trade
Picture
K-State Research & Extension
Long-Run Beef Export Growth
Has Been Phenomenal
U.S. Beef Exports .
3.0
.
2.5
2.0
1.5
Billion Pounds
1.0
0.5
0.0
61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01
Year
Source: USDA .
K-State Research & Extension
And The Gap Between Our Imports &
Exports Has Narrowed Dramatically
U.S. Beef Imports & Exports .
3.5
3.0
.
2.5
2.0
Billion Pounds
1.5
Beef Exports
1.0 Beef Imports
0.5
0.0
61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01
Year
Source: USDA .
K-State Research & Extension
Net Imports Up Recently
But Still Far Below Early 1990’s
U S BEEF, VEAL, & LIVE CATTLE
NET IMPORTS
Thou. Head
Animal Equivalents, Annual
4500
4000
3500
3000
2500
2000
1500
1000
500
0
-500
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Total Mexico Canada
Source: LMIC K-State Research & Extension
Weak Economies In Importing Countries & BSE In Japan
Mean Exports Will Be Soft In 2002
2001 U.S. Beef Exports
Market Share By Country
CARIBBEAN
OTHER 1% CANADA
6% 10%
S. KOREA
15%
MEXICO
24%
JAPAN
Source: USDA & KSU,
44% based on quantity shares
K-State Research & Extension
Weak Economies In Importing Countries & BSE In Japan
Mean Exports Will Be Soft In 2002
2002 U.S. Beef Exports
Market Share By Country
CARIBBEAN
OTHER 1% CANADA
7% 10%
S. KOREA
25%
MEXICO
25%
JAPAN Source: USDA & KSU,
32% based on quantity shares
K-State Research & Extension
But Trade Debacle Has Occurred In Poultry
• During 2001 U.S. Broiler Exports Equaled
About 18% of U.S. Broiler Production
• Approx. 40% of U.S. broiler exports were
shipped to Russia
• Russia banned U.S. poultry imports
effective 3/10/02
• Ban was lifted, but summer quarter
shipments were still down 34%
K-State Research & Extension
Summary
• 2002 annual beef imports up slightly vs. last year
• 2002 annual beef export quantity up modestly from 2001,
but $ value flat
• Weights are finally approaching last year’s level
• U.S. beef production about 3% below 2002
• Poultry Exports Will Remain Weak
• Pork Exports to Mexico Could Be A Problem
K-State Research & Extension
The
Demand
Picture
K-State Research & Extension
Beef Demand Softened During 1st Half of 2002
Retail Beef, Live Steer & Choice Boxed Beef Cutout .
Demand Indices, January-June 1980=100 .
70
66
65 64 64
62
61
60 60
.
60 58 59
57
56 56
Index Value
55 56
55 54
55 54 53 53 53
53
51 51 51 51
50 50
50 48 48 48 49
47 47 48
46
45 45
40
91 92 93 94 95 96 97 98 99 00 01 02
Retail Choice Beef Year Steer
Live Beef Cutout
Source: USDA, U.S. Dept. of Commerce & K-State
K-State Research & Extension
Where Are We Headed?
K-State Research & Extension
Cyclical Peak
In Slaughter Cattle Prices Still Ahead
Annual Average Steer Prices .
Kansas Slaughter Steers .
85
80
75
.
70
Steer Price ($/Cwt.)
65
60
55
50
45
40
35
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03
Year .
Source: USDA, 2003 Forecast
K-State Research & Extension
Futures Anticipate Prices Hitting $80 This Winter
Mid-Month Futures Based Price Forecasts
Kansas Slaughter Steers
82
80
78
76
74
Basis ($/cwt)
72
70 3 Yr. Avg. Basis
Most Neg. Basis
68
Most Pos. Basis
66
64
Jan. '03 Feb. '03 Mar. '03 Apr. '03 May '03 Jun. '03 Jul. '03 Aug. '03 Sep '03 Oct. '03
Month & Year
Source: CME & K-State Research & Extension
Forecasts = Friday Futures Settlement Prices + Basis Estimates
K-State Research & Extension
Feeder Cattle Prices Rebounding in 2003
Corn Prices Could Be A Factor This Year
95 Dodge City 7-8 Cwt. Annual Average Steer Prices .
90
85
.
80
75
70
Steer Price ($/Cwt.)
65
60
55
50
45
40
35
30
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03
Source: USDA, 2003 Forecast Year
K-State Research & Extension
Feeder Futures Suggest Prices In Low to Mid-$80’s Next Year
But Feed Grain Prices Will Be Important
Mid-Month Futures Based Price Forecasts
700-800 Lb. Feeder Steers, Dodge City, KS
90
89 3 Yr. Avg. Basis Most Neg. Basis Most Pos. Basis
88
87
86
85
84
$/cwt
83
82
81
80
79
78
Jan. '03 Feb. '03 Mar. '03 April May '03 Jun. '03 Jul. '03 Aug. Sep. '03 Oct. '03 Nov. '03
'03 '03
Month & Year
Source: CME & K-State Research & Extension
Forecasts = Friday's Settlement Prices + Basis Estimates
K-State Research & Extension
Declining Corn Prices Helped Boost
Feeder Cattle Prices Since Mid-1990’s
Kansas Monthly Corn Prices
5.25
5.00 1985-1989 Average = $2.23/bu.
4.75 1990-1994 Average = $2.40/bu.
4.50 1995-1999 Average = $2.65/bu.
4.25 2000-2001 Average = $1.97/bu.
2002 Average (Jan-Dec.) =$2.22/bu.
Corn Price ($/bu.)
4.00
3.75
3.50
3.25
3.00
2.75
2.50
2.25
2.00
1.75
1.50
1.25
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03
Year
Source: Kansas Ag. Statistics-USDA
K-State Research & Extension
Summary
1. Long-Term Outlook
¸ Cyclical Peak In Slaughter Cattle Prices Still Ahead
¸ Major Risk Is Beef Demand
¸ Domestic & Export
2. Cow-Calf Producers
¸ Key Is Holding Down Costs
¸ Corn Prices Will Affect Calf & Feeder Prices
3. Still Tough For Margin Operators
¸ Cattle Finishers Profitable This Winter and Early Spring
¸ Need To Be Cautious About Summer Breakevens
K-State Research & Extension
Risk Management Considerations
• Cattle Prices Rising Cyclically
– Consider Using Put Option Strategies
– Use Puts To Establish Maximum Loss
– Consider Locking In Large Positive Returns
• Consider Managing Corn Price Risk
– Tightest Corn Stocks Since 1995/1996
– Set Back In Corn Prices Could Be An Opportunity To Lock In
Feed Costs
K-State Research & Extension
Risk Management Considerations
1. Quantify your risks
2. Know yourself
3. Identify your primary market objectives & list them in
order of importance
4. Take action when market provides opportunity to meet
your primary objective
5. Learn how unfamiliar marketing tools work
6. Afterwards, evaluate your results
Adapted from Bob Price’s “Market Thoughts”,
September, 2002 K-State Research & Extension
For Updated Livestock Marketing
Information Visit The
K-State Livestock & Meat Marketing
Web Site
www.agecon.ksu.edu/livestock
K-State Research & Extension
