K-State Research & K-State Research & Extension Extension Cattle Outlook Cattle Outlook Kansas Agricultural Bankers Association Kansas Agricultural Bankers Association April 20, 2006 April 20, 2006 James Mintert, Ph.D. James Mintert, Ph.D. Professor & Extension State Leader Professor & Extension State Leader Department of Agricultural Economics Department of Agricultural Economics Kansas State University Kansas State University www.agmanager.info/livestock/marketing www.agmanager.info/livestock/marketing [email protected][email protected]
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1 K-State Research & Extension Cattle Outlook Kansas Agricultural Bankers Association April 20, 2006 James Mintert, Ph.D. Professor & Extension State Leader.
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K-State Research & ExtensionK-State Research & Extension
Cattle OutlookCattle OutlookKansas Agricultural Bankers AssociationKansas Agricultural Bankers Association
April 20, 2006April 20, 2006
James Mintert, Ph.D.James Mintert, Ph.D.Professor & Extension State Leader Professor & Extension State Leader
Department of Agricultural EconomicsDepartment of Agricultural EconomicsKansas State UniversityKansas State University
Source: USDA, Dept. of Commerce & K- State Research & Extension Price Deflated By CPI, 1980 =100 for Beef Demand Index
KSU Dept. of Ag. Econ. www.agmanager.info
K-State Research & ExtensionK-State Research & Extension
Measuring Changes In Beef DemandMeasuring Changes In Beef Demand1998-20051998-2005
Annual Retail Choice Beef Demand Index
52 54 56 5559
63 61
50
0
10
20
30
40
50
60
70
80
90
100
98 99 00 01 02 03 04 05Year
Ind
ex V
alu
e
Source: USDA, Dept. of Commerce & K- State Research & Extension Price Deflated By CPI, 1980 =100 for Beef Demand Index
KSU Dept. of Ag. Econ. www.agmanager.info
Beef Demand During All of ’05 Decreased About 3.6%But Demand in ’05 Was Still Up About 21% from 1998 Level
K-State Research & ExtensionK-State Research & Extension
Beef Demand ShiftersBeef Demand ShiftersWhat’s been taking place recently?What’s been taking place recently?
• Growth in consumer incomeGrowth in consumer income
• New product offeringsNew product offerings
• Positive health information Positive health information
– Low carb dietsLow carb diets
– But low carb diet effect appears to have leveled offBut low carb diet effect appears to have leveled off
• Implication: beef demand could weakenImplication: beef demand could weaken
– Product innovation will be importantProduct innovation will be important
K-State Research & ExtensionK-State Research & Extension
Who Benefits Most from Beef Demand Increases?Who Benefits Most from Beef Demand Increases?
– In the long run:In the long run:
• Cow-calf producersCow-calf producers
– How?How?
• Higher prices for calves & cullsHigher prices for calves & culls
– Profitability IncreasesProfitability Increases
– Rise in profitability leads to industry expansionRise in profitability leads to industry expansion
K-State Research & ExtensionK-State Research & Extension
TradeTrade
• All trade is voluntaryAll trade is voluntary
• All trade is mutually beneficialAll trade is mutually beneficial
• International trade increases consumption International trade increases consumption possibilitiespossibilities
K-State Research & ExtensionK-State Research & Extension
If Trade Is So Good, Why Is It Controversial?If Trade Is So Good, Why Is It Controversial?
• Free markets and free trade increase social Free markets and free trade increase social welfare (benefits outweigh costs) for society at welfare (benefits outweigh costs) for society at largelarge
• But not all individuals and groups are made But not all individuals and groups are made better offbetter off
K-State Research & ExtensionK-State Research & Extension
Increases in Trade Fueled Economic GrowthIncreases in Trade Fueled Economic GrowthWorld GDP
Annual, Inflation Adjusted (2000 $'s)
10
15
20
25
30
35
40
71 76 81 86 91 96 01 06
Year
Tri
llion $
Source: World Bank & ERS-USDA, 2006 Estimated
K-State Research & ExtensionK-State Research & Extension
Net Exports of U.S. Cattle, Beef, & By-Products1979-2005
-2.00
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
3.00
79 81 83 85 87 89 91 93 95 97 99 01 03 05
Year
Bil
lio
n $
Source: U.S. Dept. of Commerce & LMIC Net Exports = Exports - Imports
U.S. Has Been A Net Exporter Since 1981U.S. Has Been A Net Exporter Since 1981
K-State Research & ExtensionK-State Research & Extension
Top 5 Importers Top 5 Importers Accounted for 91% of U.S. ExportsAccounted for 91% of U.S. Exports
Top 10 Importers of U.S. BeefRanked by Value of Imports in 2003
Other Category Consists of All Other Destinations
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
Japan Mexico S. Korea Canada HongKong
Taiwan Russia China Kuwait Egypt Other
Destination
Va
lue
(T
ho
us
an
d $
)
.
.
Source: USDA-FAS .
K-State Research & ExtensionK-State Research & Extension
Annual Cattle Imports From Canada .
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04
Year
Millio
n H
ea
d .
Source: USDA
Cattle Imports from Canada Are IncreasingCattle Imports from Canada Are Increasing But Rebound Has Been Slower Than Expected But Rebound Has Been Slower Than Expected
Aug.-Dec. ’05 imports Aug.-Dec. ’05 imports 35% below 2002 and 35% below 2002 and 11% below the 11% below the 2000-2002 average2000-2002 average
K-State Research & ExtensionK-State Research & Extension
Increases in Beef Industry ConcentrationIncreases in Beef Industry Concentration
K-State Research & ExtensionK-State Research & Extension
• 4-Firm Concentration Ratio (CR4) increased from 4-Firm Concentration Ratio (CR4) increased from 41% to 78% during ’80’s41% to 78% during ’80’s– Transition to large plant sizes was dramatic Transition to large plant sizes was dramatic – 19721972
• 70% of all slaughter in plants handling less than 250,000 hd/year70% of all slaughter in plants handling less than 250,000 hd/year• 35% of all slaughter in plants handling less than 100,000 hd/year35% of all slaughter in plants handling less than 100,000 hd/year
– 19921992• 70% of all slaughter in plants handling over 500,000 hd/year70% of all slaughter in plants handling over 500,000 hd/year• 4% of slaughter in plants handling less than 100,000 hd/year4% of slaughter in plants handling less than 100,000 hd/year
Source: McDonald & Ollinger, 2005
K-State Research & ExtensionK-State Research & Extension
Have Packing Industry ChangesHave Packing Industry Changes Been Good or Bad? Been Good or Bad?
Sources: GIPSA-USDA, Cattle Buyers Weekly, and Supermarket News, Top 75 Grocery Retailers
K-State Research & ExtensionK-State Research & Extension
Where Are We Headed?Where Are We Headed?
TradeTrade
• U.S. strength is in high quality beef productsU.S. strength is in high quality beef products
• Other countries may have comparative Other countries may have comparative advantage in cow-calf productionadvantage in cow-calf production
• Regaining market share could take yearsRegaining market share could take years
• Consumer incomes in importing countries Consumer incomes in importing countries are key to long-run growth in exportsare key to long-run growth in exports
K-State Research & ExtensionK-State Research & Extension
Long, Slow Road to Export RecoveryLong, Slow Road to Export Recovery
Annual U.S. Beef Exports
0.0
0.5
1.0
1.5
2.0
2.5
3.0
80 82 84 86 88 90 92 94 96 98 00 02 04 06
Year
Bil
lio
n L
bs
.
Source: USDA & LMIC, 2006-2007 Forecasts
K-State Research & ExtensionK-State Research & Extension
Where Are We Headed?Where Are We Headed?Beef Packing SectorBeef Packing Sector
• Lower costs encouraged growth of large packing plantsLower costs encouraged growth of large packing plants
• Movement toward large firms encouraged byMovement toward large firms encouraged by
– And food safety advantagesAnd food safety advantages
• Bulk of transition to large plants & firms has already taken placeBulk of transition to large plants & firms has already taken place
• Future developments likely to be in more vertical alliances or integration Future developments likely to be in more vertical alliances or integration
• Small packing plants operate at huge cost disadvantageSmall packing plants operate at huge cost disadvantage
Slaughter could rise 3 to 5%, and beef production could rise 4 to 6%, but trade improvements mean per capita supplies could increase just 1 to 2%
K-State Research & ExtensionK-State Research & Extension
Where Are Corn Prices Headed?Where Are Corn Prices Headed?Higher Corn Prices Spell Trouble for Livestock ProducersHigher Corn Prices Spell Trouble for Livestock Producers
Source: USDA-Kansas Agricultural Statistics &K-State Research & Extension
1985-1989 Average = $2.23/bu.1990-1994 Average = $2.40/bu. 1995-1999 Average = $2.65/bu.2000-2004 Average = $2.23/bu.2004 Average=$2.59/bu.2005 Average=$2.02/bu.
K-State Research & ExtensionK-State Research & Extension
Feeders In ‘05 Averaged A Record High of $112/cwt.Feeders In ‘05 Averaged A Record High of $112/cwt.Prices in ’06 Could Wind Up Near ’04’s AveragePrices in ’06 Could Wind Up Near ’04’s Average