Cattle and Calves
The beef cycle begins with the cow-calf operation, which breeds the new calves. Most ranchers breed their herds of cows in summer, thus producing the new crop of calves in spring (the gestation period is about nine months). This allows the calves to be born during the milder weather of spring and provides the calves with ample forage through the summer and early autumn. The calves are weaned from the mother after 6-8 months and most are then moved into the “stocker” operation. The calves usually spend 6-10 months in the stocker operation, growing to near full-sized by foraging for summer grass or winter wheat. When the cattle reach 600-800 pounds, they are typically sent to a feedlot and become “feeder cattle.” In the feedlot, the cattle are fed a special food mix to encourage rapid weight gain. The mix includes grain (corn, milo, or wheat), a protein supplement (soybean, cottonseed, or linseed meal), and roughage (alfalfa, silage, prairie hay, or an agricultural by-product such as sugar beet pulp). The animal is considered “finished” when it reaches full weight and is ready for slaughter, typically at around 1,200 pounds, which produces a dressed carcass of around 745 pounds. After reaching full weight, the cattle are sold for slaughter to a meat packing plant. Futures and options on live cattle and feeder cattle are traded at the Chicago Mercantile Exchange. Both the live and feeder cattle futures contracts trade in terms of cents per pound.
Prices Live cattle futures prices, after posting a 4-1/2 year low of 78.7 cents per pound in December 2009, moved up to a 2-year high of 102.0 cents in April as foreign demand for U.S. beef picked up. The increase in foreign demand cut into supplies with U.S. beef in cold storage falling to a 5-year low of 363 million lbs in May. Live cattle prices then traded sideways in the range of about 89-100 cents into Q4 of 2010 when prices rose into the end of the year, closing the year up 25% at 107.9 cents. Cattle prices in January of 2011 rose to an all-time high of $1.12375 a pound, the highest since cattle futures trading began in 1964. Strong export demand underpinned prices with US beef exports up +18.9% y/y in 2010. The USDA’s quarterly cattle report in Jan 2011 showed the US cattle herd as of Jan 1 2011 was 92.582 million head, -1.4% y/y and the smallest since 1958 as high feed costs prompted ranchers to cull herds. Future cattle supplies may be limited after the USDA estimated the number of calves born during 2010 was 35.685 million, down -0.7% y/y and the fewest since 1950.
Supply The world’s number of cattle as of January 1, 2010 rose +0.1% to 992.212 million head, which is just above last year’s 3-1/2 decade low. As of January 1, 2010 the number of cattle and calves on farms in the U.S. fell -1.4% to 92.582 million, which is just above last year’s lowest level since the 1959 figure of 93.881. World production of beef and veal in 2010 fell -1.2% to 56.763 million metric tons (carcass weight equivalent) and the USDA is forecasting a drop of -0.2% to 56.663 million metric tons in 2011. U.S. commercial production of beef in 2010 rose by 1.3% to 26.311 billion pounds.
Demand World consumption of beef and veal in 2010 fell -0.5% to 56.742 million metric tons and the USDA is forecasting a further drop of 0.1% in 2011 to 56.371 million metric tons. U.S. consumption of beef and veal in 2010 fell -2.5% to 12.239 million metric tons and the USDA is forecasting a further drop of 1.8% in 2011 to 11.715 million metric tons.
Trade U.S. imports of live cattle in 2010 rose +14.1% to 2.283 million head, but remained well above the low levels seen when mad cow disease caused the U.S. to close the Canadian border to live cattle in 2003. U.S. exports of live cattle in 2010 rose +53.8% yr/yr to 89.146 head, but still up from the multi-decade low of 21,607 in 2005 caused by cattle trading bans by key U.S. trading partners.
U.S. imports of beef in 2011 are forecasted to rise +9.4% to 2.445 billion pounds. U.S. exports of beef in 2011 are forecasted to be unchanged at 2.300 billion pounds, which would still be below the levels of about 2.5 billion pounds seen before mad cow disease hit in December 2003 and sharply curbed U.S. beef exports.