Arkansas beef: Expanding herd pressures prices

Arkansas cow-calf producers have profited from good prices over the last six years. But will that trend continue into 2006?

Tom Troxel, beef cattle specialist with the University of Arkansas Cooperative Extension Service, expects 2006 to be another profitable year for cow-calf producers, but profits are expected to be slightly lower than last year. “The January U.S. cattle inventory is expected to total 97.3 million head, up more than 1.5 percent from a year ago,” Troxel says. “In addition, the U.S. cowherd is projected at 43 million head, up about 900,000 head from a year ago.

“Indications are that the U.S. beef herd is expanding and will continue to do so until about 2010.”

Troxel says expansion usually means lower cattle prices. He expects the decline in calf prices to begin in 2006, but the price in 2006 will be well above break-even prices.

“Calf prices (550-pound steer) are expected to average $121 to $123 per hundredweight in 2006, or about $6 per hundredweight lower than in 2005,” Troxel says. “That average 2006 price will be profitable for Arkansas cow-calf producers. Calf prices are expected to move lower through the end of the decade.”

Meanwhile, Troxel expects the strength of the bred female market to carry over into the first half of 2006 and result in prices that are steady or lightly higher going into the summer months.

This should be followed by slow decline in prices through the end of the decade. Bred cow prices are expected to average about $1,150 per head in 2006.

Beef production in 2006 is projected to increase nearly 1 billion pounds (4 percent) compared to 2005 and total 25.5 billion pounds.

Troxel says the price of corn plays a critical role with establishing cattle prices.

“The record large corn supplies of more than 13 billion bushels and the second largest corn crop of more than 11 billion bushels had harvest cash prices in the Midwest at some of the lowest levels in recent years.”

Omaha corn, at $1.47 per bushel in the fall, was the lowest since 2000. Corn demand has also increased mainly because of the ethanol industry. Omaha corn could average $1.70 to $1.85 this year, Troxel says.

Beef demand grew in 2004 and was about even in 2005. Demand growth is expected to be limited in 2006 and flatten out during the balance of the decade.

“Consumption is expected to remain near current levels for the remainder of the decade,” Troxel says. “If domestic net beef supplies increase slightly as expected and retail beef prices are stable, beef spending at both the retail and wholesale levels should also increase slightly during 2006.

“All signs point to another solid year for domestic beef demand,” says Troxel.

The total number of dollars available in the industry is expected to be fairly flat the next few years. However, the distribution of those dollars may change significantly during the next 24 months as number grow, production increases and the cycle progresses.

Packers, retailers and food service operators will capture a higher percentage of the available dollars during this transition phase of the cycle, he says.

“The bottom line is there will be fewer dollars available for the Arkansas cow-calf producer. Implementing cost effective practices now may pay large dividends in the years to come as calf prices decline.”

Lamar James is an Extension communications specialist with the University of Arkansas.

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