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Was 2007 A Great Year For Agriculture?

There were certainly a lot of records set in 2007. Fed-cattle prices averaged right at $93/cwt. for the year -- a new record.

There were certainly a lot of records set in 2007. Fed-cattle prices averaged right at $93/cwt. for the year -- a new record. Corn, wheat and soybeans ended the year at or near all-time record levels.

Exports continued to rise significantly despite continued problems in reopening Japan and Korea. Mandatory country-of-origin labeling (COOL) was finally addressed with a compromise that eliminated many of the problems. The industry once again turned its focus on building demand, as the internal strife fell from a yell to a murmur.

Things outside of ag could be seen as pretty positive, as well. The Dow was up more than 6% on the year, and the NASDAQ was up nearly 10%. Plus, the war in Iraq ended the year with very positive news for the cause of freedom.

Still the cattle industry didn't post anywhere near the type of year that the other commodity groups did, and there were some ominous signs as a result. Energy prices continued to soar, with the once-unthinkable level of $100/barrel oil being reached on Thursday before it fell back. Gold streaked to an all-time high, and the U.S. dollar's continued weakness -- while good for ag exports -- indicates the economy may be reaching a tipping point.

Ethanol mandates were raised even higher, virtually ensuring a smaller cattle industry. Severe drought in the Southeast ensured that 2007 would be yet another liquidation year in history's longest cattle cycle. And excess capacity in U.S. packing and feeding continued to benefit the cow-calf sector by propping calf prices higher than economic models would suggest. Higher feed grains, higher input costs, and declining prices, however reduced profits somewhat.

It's interesting to note that the feeding and packing segments and even ag economists continue to express frustration that the cow-calf sector hasn't responded with expansion to this extended period of profitability. Certainly BSE, drought, winter storms and the like have helped to short-circuit expansion, but cow-calf producers are simply making the right decisions regarding expansion.

While profits of $20/head are in the black, they shouldn't suffice to encourage expansion. Not when the costs of adding a female are at least $1,200, and not with the estimate of total investments per cow unit running $3,500 or more.

And while the long-term price estimates remain relatively positive, the cow-calf industry understands that increased ethanol mandates and an inevitable reduction in feeding and packing capacity are not long-term positives.

In a narrow sense the circumstances surrounding supply and demand have never been better for the cattle industry. But from a broader sense, there's very little in the overall business climate that can be deemed as positive for cattle producers. 2008 should be another good year for the cow-calf industry, but producers must continue to focus on improving profitability via quality rather than quantity. And that will be to the continued dismay of the feeding and packing industries.