Guarded Outlook

The 2004 Cattle-Fax market outlook presents a mixed bag for beef producers. It's one laced with caveats and warnings of volatility.

You know you're living in interesting times when the best cattle industry analysts are more confident predicting long-range weather patterns than short-term cattle prices. But, don't blame the competency of the price forecasters — blame the uncertainty of today's beef business climate.

First off, the annual Cattle-Fax weather and price outlook for 2004 (see maps on page 24) contains warnings of drought lingering over many areas of the U.S. The northern Rockies and a large region stretching from the Southwest into western Nebraska, along with a wide swath in the Southeast, will see below-average spring precipitation.

The summer rain outlook shows only a small region in the mid-northern tier and areas in Arizona and Utah with above-normal precipitation. The West Coast, West Texas and a large area of the upper Midwest, Mid-Atlantic and Northeast will experience below-average summer rainfall. The rest of the nation will see normal rainfall, with many areas of the West playing catch-up after a string of dry winters.

Hinging On Exports And Corn

Like many other price forecasters, Denver, CO-based Cattle-Fax analysts don't flinch when they say the cattle price outlook for 2004 will continue to be underscored by “tremendous volatility.” Short-term prices don't look too bad for cow-calf producers. For cattle feeders, the picture is not quite so rosy.

Cattle-Fax's price predictions for 2004 are laced with caveats and assumptions swirling around the bovine spongiform encephalopathy (BSE) events of the last several months.

Domestic beef demand, though, remains on solid footing after initial fears that the BSE case in Washington would rock consumer confidence in American beef. The uncertainty of the beef export picture is another story.

Cattle-Fax analysts' best guesses are that Mexico could come back into the trade picture by late March. They don't expect any movement by Japan and South Korea until at least the year's third quarter.

The size of the 2004 corn crop is the other wild card. As always, higher corn prices don't mesh well with feeder profitability. Looming over cattle prices are U.S. ending corn stocks that are projected to fall for the third straight year. Global corn stocks are the lowest since 1976/1977.

Given current demand prospects for 2004/2005, a crop of at least 10 billion bu. will be necessary just to keep up with combined export demand and domestic use. Overall, domestic demand for corn is expected to exceed 8 billion bu. (which would be record demand) going into the new crop year. Growing ethanol production will contribute to increasing corn consumption.

“We'll need a record corn crop just to keep up with demand,” says Cattle-Fax's Mike Miller. “Questions about the corn crop and corn demand will contribute to cattle price volatility this year and beyond 2004.”

Assumptions And Uncertainties

Cattle-Fax believes 2004 U.S. 550-lb. steer prices will average $104-$107/cwt., possibly higher, while 750-lb. steer prices will average $88-$90/cwt. (see charts)

Bred-cow prices are expected to average $50-$100/head over 2003 prices. Utility slaughter cow price averages will range from $47-$49/cwt.

These prices are based on several assumptions (not certainties) including:

  • Beef and cattle imports from Mexico will be down slightly from 2003.

  • The Canadian border remains closed to feeder cattle imports until late 2004.

  • Corn prices remain below $3/bu. basis Omaha.

  • The Mexican border will reopen to U.S. beef imports by late March.

  • Asian markets will reopen to U.S. beef imports by the third quarter of the year.

  • Milk prices holding above $11.50-$12/cwt.

Increasing corn prices may come back to haunt weaned-calf prices as early as summer or fall. Cattle-Fax says cow-calf producers, though, should continue to be profitable the next three years.

Summer stocker profits will vary greatly in 2004, depending on when the cattle were bought. Cattle-Fax CEO Randy Blach warns that now is not the time for stocker operators to be “swinging for the fence,” but that “modest profit margins” should remain through 2004.

The prospects for cattle feeding into 2004 aren't as bright. Cattle-Fax says the feeding industry will move back into a narrow margin business by spring. Breakevens will be at the highest levels in history during the second quarter of 2004.

Fed-cattle prices are expected to average $76-$78/cwt. for the year. Breakeven selling prices could increase into the mid-$80/cwt. range by later summer/early fall.

There are several price-impacting factors producers should monitor. All could have major impacts on cattle marketing decisions during 2004:

  • Supply and demand situations as measured by beef slaughter levels and competitive protein prices.

  • Carcass weights that are expected to increase about 6 lbs./head in 2004.

  • Higher corn prices this spring and summer that could further depress feeder profitability.

  • Export market situations that should begin to return to pre-Dec. 23, 2003, levels sometime during the year.

  • Border reopening to Canadian live cattle.

  • Domestic demand that grew in 2003 and is expected to remain strong in 2004.

“The global beef market is here to stay; get plugged into the markets,” Blach says in punctuating the cattle market outlook. “Keep track of all the moving parts and be aware of any minefields that might be placed before you along the way.”