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
www.agmanager.info/livestock/marketingwww.agmanager.info/livestock/marketing
[email protected]@ksu.edu
K-State Research & ExtensionK-State Research & Extension
Forces Shaping Change in U.S. Beef SectorForces Shaping Change in U.S. Beef Sector
• Beef DemandBeef Demand
• International TradeInternational Trade
• Shifts in Optimum Firm SizeShifts in Optimum Firm Size
• Putting It All TogetherPutting It All Together
K-State Research & ExtensionK-State Research & Extension
Beef DemandBeef Demand
K-State Research & ExtensionK-State Research & Extension
A Picture of A Healthy IndustryA Picture of A Healthy Industry
U.S. Cattle InventoryJ anuary 1, 1925-1975
50
6070
8090
100110
120130
140
25 30 35 40 45 50 55 60 65 70 75Year
Million
Head
Source: USDA & K-State Research & ExtensionKSU Dept. of Ag Econwww.agmanager.info
K-State Research & ExtensionK-State Research & Extension
U.S. Cattle InventoryJ anuary 1, 1975-2006
50
60
70
80
90
100
110
120
130
140
75 80 85 90 95 00 05Year
Million
Head
Source: USDA & K-State Research & ExtensionKSU Dept. of Ag Econwww.agmanager.info
A Shrinking IndustryA Shrinking IndustryResponding to a Lack of Profitability Responding to a Lack of Profitability
Current inventory is about 26% Current inventory is about 26% smaller than in 1975smaller than in 1975
K-State Research & ExtensionK-State Research & Extension
Measuring Changes In Beef DemandMeasuring Changes In Beef Demand1980-19981980-1998
Annual Retail Choice Beef Demand Index
88 86 8379 76
70 6966 65 62 59 58 56 55 53 51
94
50
0
10
20
30
40
50
60
70
80
90
100
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98Year
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
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
Cattle Feeding Concentration IncreasingCattle Feeding Concentration Increasing
19751975
7 Major Feeding States7 Major Feeding States
• 56,221 feedlots marketed 15 million cattle56,221 feedlots marketed 15 million cattle
• Average marketings/feedlot = 267 headAverage marketings/feedlot = 267 head
• Feedlots > 1,000 hd. (1,221 lots) marketed 74% of Feedlots > 1,000 hd. (1,221 lots) marketed 74% of cattlecattle
Source: USDA, Cattle On FeedSource: USDA, Cattle On Feed 7 states = AZ, CA, CO, IA, KS, 7 states = AZ, CA, CO, IA, KS, NE, TX NE, TX
K-State Research & ExtensionK-State Research & Extension
Fewer But Larger Cattle FeedersFewer But Larger Cattle Feeders
19951995
7 Major Feeding States7 Major Feeding States
• 23,472 feedlots marketed 20.2 million cattle23,472 feedlots marketed 20.2 million cattle
• Average marketings/feedlot = 858 headAverage marketings/feedlot = 858 head
• Feedlots >1000 hd. (1,584 lots) marketed 93% Feedlots >1000 hd. (1,584 lots) marketed 93% of cattleof cattle
Source: USDA, Cattle On FeedSource: USDA, Cattle On Feed 7 states = AZ, CA, CO, IA, 7 states = AZ, CA, CO, IA, KS, KS, NE, TX NE, TX
K-State Research & ExtensionK-State Research & Extension
Even Fewer But Larger Cattle FeedersEven Fewer But Larger Cattle Feeders
20042004
7 Major Feeding States7 Major Feeding States
• 14,932 feedlots marketed 20.4 million cattle14,932 feedlots marketed 20.4 million cattle
• Average marketings/feedlot = 1,369 headAverage marketings/feedlot = 1,369 head
• Feedlots >1000 hd. (1,632 lots) marketed 95% Feedlots >1000 hd. (1,632 lots) marketed 95% of cattleof cattle
Source: USDA, Cattle On FeedSource: USDA, Cattle On Feed 7 states = AZ, CA, CO, IA, 7 states = AZ, CA, CO, IA, KS, KS, NE, TX NE, TX
K-State Research & ExtensionK-State Research & Extension
Share of U.S. Fed Cattle Marketings By Feedyard Size Category, 1979-2004
0%
10%
20%
30%
40%
50%
60%
79 81 83 85 87 89 91 93 95 97 99 01 03
Year
Sh
are
of
U.S
. F
ed
Ca
ttle
Ma
rke
tin
gs
32,000 Hd. & Over 16,000-31,999 Hd.8,000-15,999 Hd. 4,000-7,999 Hd.2,000-3,999 Hd. 1,000-1,999 Hd.
Source: USDA, LMIC, & K-State Research & Extension
Survivor Analysis:Survivor Analysis:Which Size Category Is Gaining Market Share?Which Size Category Is Gaining Market Share?
K-State Research & ExtensionK-State Research & Extension
Why Is Feedlot Concentration Increasing?Why Is Feedlot Concentration Increasing?• Lower costs for larger firmsLower costs for larger firms
• Why? Why?
• Larger firms in better position to utilizeLarger firms in better position to utilize– TechnologyTechnology– Management skillsManagement skills
• Labor managementLabor management• Financial managementFinancial management• Marketing managementMarketing management
• Implication: Small & medium size feeders Implication: Small & medium size feeders operate at a cost disadvantageoperate at a cost disadvantage
K-State Research & ExtensionK-State Research & Extension
Beef Packing SectorBeef Packing SectorConcentration Increased DramaticallyConcentration Increased Dramatically
• 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?
Shift toward larger plant sizes reduced costs Shift toward larger plant sizes reduced costs dramaticallydramatically
Industry Weighted Average Processing Costs Industry Weighted Average Processing Costs
YearYear Per Head Cost (1992$)Per Head Cost (1992$)
19771977 $131.42$131.42
19921992 $96.58 $96.58
19971997 $90.65 $90.65
20022002 $85.09 $85.09
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?
• Meat packing labor productivity increasedMeat packing labor productivity increased
– Index of output per hour rose 80% from 1970 to 1998Index of output per hour rose 80% from 1970 to 1998
• 1970 -1998, inflation adjusted spread between 1970 -1998, inflation adjusted spread between live and wholesale beef prices declined 57%live and wholesale beef prices declined 57%
• Technology & productivity improvementsTechnology & productivity improvements
– reduced farm-wholesale price spread by $0.23/cwt.reduced farm-wholesale price spread by $0.23/cwt.
– boosted live cattle prices $1.75/cwt. boosted live cattle prices $1.75/cwt.
Source: Marsh & Brester, 2001
K-State Research & ExtensionK-State Research & Extension
What About the Rest of the Food Supply Chain?What About the Rest of the Food Supply Chain?
Beef Packer & Retail Grocer ConcentrationBeef Packer & Retail Grocer Concentration2004 concentration levels (approximate)
Top 4 Beef Packers Top 4 Retail Grocers(steer & heifer slaughter)
82% Market Share 33% Market Share
Tyson Wal-Mart (15%)Cargill Kroger (7%)Swift & Co. Costco (6%)National Beef Albertsons (5%)
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
– Lower operating costs Lower operating costs
– Lower procurement costs (per unit)Lower procurement costs (per unit)
– Lower marketing costs (per unit)Lower marketing costs (per unit)
– 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
– Future Beef (Winfield, KS) - BankruptFuture Beef (Winfield, KS) - Bankrupt
– Iowa Quality Beef Supply Network (Tama, IA) - BankruptIowa Quality Beef Supply Network (Tama, IA) - Bankrupt
K-State Research & ExtensionK-State Research & Extension
Where Are We Headed?Where Are We Headed?
Beef DemandBeef Demand
• Short run gains from low-carb diets behind usShort run gains from low-carb diets behind us
• Future gains will come from product innovationFuture gains will come from product innovation
• Opportunities abound for innovatorsOpportunities abound for innovators
K-State Research & ExtensionK-State Research & Extension
Pork Production Expected To Rise Next Several YearsPork Production Expected To Rise Next Several Years
Annual U.S. Commercial Pork Production .
11
13
15
17
19
21
23
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06
Year
Bil
lio
n P
ou
nd
s
Source: USDA, 1999 KSU Forecast
Source: USDA, 2006 & 2007 LMIC Forecasts
K-State Research & ExtensionK-State Research & Extension
Poultry Production Increases Could ModeratePoultry Production Increases Could Moderate
Annual U.S. Poultry Production Ready-To-Cook Weight
0
5
10
15
20
25
30
35
40
45
81 83 85 87 89 91 93 95 97 99 01 03 05 07Year .
Pou
ltry
Pro
du
ctio
n
(B
illion
Lb
s.)
Chicken Production Turkey Production
Source: USDA & K-State Research & ExtensionLMIC Forecasts for 2006 & 2007
KSU Dept. of Ag Econwww.agmanager.info
K-State Research & ExtensionK-State Research & Extension
Beef Production Will Rise CyclicallyBeef Production Will Rise Cyclically
Commercial Beef Production
20
21
22
23
24
25
26
27
28
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06
Year
Bill
ion
Pou
nd
s
Source: USDA & K-State Research & Extension LMIC Forecasts for 2006 & 2007
K-State Research & ExtensionK-State Research & Extension
Record High Annual Average in ’05Record High Annual Average in ’05Lower Prices in ‘06Lower Prices in ‘06
W. Kansas Direct Slaughter Steer Prices .
60
65
70
75
80
85
90
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
Year
Pri
ce
($
/cw
t.)
Source: AMS-USDA, Dodge City, KS, 2006 Forecast
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
Kansas Monthly Corn Prices
1.251.501.752.002.252.502.753.003.253.503.754.004.254.504.755.00
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05
Year
Co
rn P
rice
($/
bu
.)
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 $112/cwt.Prices in ’06 Could Wind Up Near ’04’s AveragePrices in ’06 Could Wind Up Near ’04’s Average
Dodge City, KS 700-800 Lb. Steer Prices .
60
65
70
75
80
85
90
95
100
105
110
115
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
Year
Pri
ce
($
/cw
t.)
Source: AMS-USDA, Dodge City, KS & KSU, 2006 Forecast .
K-State Research & ExtensionK-State Research & Extension
Record High Calf Prices In ‘05Record High Calf Prices In ‘05And Near Record High in ‘06And Near Record High in ‘06
Dodge City, KS 500-600 Lb. Steer Prices .
6065707580859095
100105110115120125130135
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
Year
Pri
ce
($
/cw
t.)
Source: AMS-USDA, Dodge City, KS & KSU, 2006 Forecast .
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