Cattle-Fax offers '07 outlook

Feb 6, 2007 12:15 AM

Weather, corn prices, and surging demand for ethanol dominated the discussion at the annual Cattle-Fax Outlook Seminar, held Feb. 1 at the Cattle Industry Annual Convention and Trade Show.

Cattle-Fax Executive Vice President Randy Blach said while 2007 is likely to bring a downturn in profitability for most cattle industry sectors, cattlemen should keep this news in perspective. "In the past several years, we've had one of the greatest runs of profitability in recent history," Blach said.

Blach expects most segments of the cattle industry to remain profitable in 2007, but clearly not at the same levels enjoyed in recent years. "Profitability within the cattle industry will be more marginal," he said.

Much of the dampened outlook for 2007 rests with sharply higher corn prices, driven in large part by skyrocketing production of ethanol. Cattle-Fax analyst Mike Murphy said demand for corn has increased 50 percent in the past 15 years, with ethanol production responsible for most of the recent momentum. Murphy said the projected U.S. corn crop for 2007 is 12 billion bushels, and every last bushel will be needed. He warned that drought in the Corn Belt in 2007 could have particularly drastic consequences, because even a strong corn crop will be hard-pressed to meet current demand. He noted the strong demand for corn extends well beyond U.S. borders.

Murphy expects corn prices to be volatile, with moderation possible only if summer growing conditions are favorable. But he cautioned that the grain market is now well-established in a higher trading range, and cattlemen shouldn’t expect or plan on significant price relief.

Cattle-Fax Senior Market Analyst Kevin Good reported that 2006 was the third straight year of U.S. herd expansion, but qualified that this expansion occurred at a very mild level and was held back by drought and soaring feed prices. These conditions contributed to a higher level of cow slaughter, as well as increased heifer placements in feedlots.

Good also noted that carcass weights increased an average of 12 pounds in 2006 – about double the 25-year average. This has resulted in a plentiful beef supply, even though beef demand has remained fairly robust.

Blach says despite higher costs, the cattle feeding industry won't undergo wholesale changes. But all sectors need to adjust to changing market conditions in order to identify and capitalize on profit opportunities – opportunities that still exist for cattlemen, even though they may be more difficult to realize.

"Change is constant," Blach said. "Only those who accept change will adapt and prosper."

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