LIVESTOCK REPORT
By Glenn Grimes

CATTLE
Demand continues to be the exceptional side of the price equation in 2004. January to August beef demand was up about 7.5 percent from the same months in 2003. Because of the loss of most of our beef exports in 2004, demand for live fed cattle was down 6.3 percent for January to August.

U.S. beef imports in August were up nearly 58 percent from a year earlier. Canadian imports accounted for 79 percent of this increase. For January to August, U.S. beef imports were 26 percent more than the same period a year ago. Our beef imports from Canada increased 65 percent for this 8-month period and accounted for nearly 54 percent of our beef import growth. Uruguay was the other big gainer in beef sales to the United States. For January to August, 41.5 percent of the increase in U.S. beef imports came from Uruguay.

As expected, U.S. beef exports were down over 85 percent from January to August because of other countries' bans on importing our beef due to BSE.

Live cattle imports from Mexico during the first 8 months of 2004 were up over 30 percent compared to the same months in 2003. However, because of the U.S. ban on importing live cattle from Canada, our total live cattle imports were down about 28 percent for this period.

There continue to be reports that the Japanese may use scientific evidence to decide what age of cattle should be tested for BSE. Apparently, they have found no animal under 21 months of age that has tested positive. Most other countries do not require BSE testing for cattle under 31 months old. However, it is still uncertain how long it will be before Japan changes its testing requirements or (truly) resumes buying beef from the U.S. and Canada. Fed cattle prices found stability in the low $80s during September and October. In late October, the futures market had $3 to $7 per cwt. premiums to the cash market through the April 2005 contract.

The seasonal decline in feeder cattle prices has been minimized by USDA's October forecast of a record 11.6 billion bushel corn crop and cash corn prices in the Cornbelt below $2 per bushel. In mid-October, 400-plus lb. steer calves were still selling for up to $142 per cwt. at Oklahoma City and 700 to 800 lb. yearling steers were selling from $114.25 to $120.50 per cwt.

We still believe cow/calf producers have started to build the breeding herd, at least at a slow rate. In mid-October, replacement cows 3 to 6 years old were selling for nearly $1,000 per head at Oklahoma City. These cows had been bred 5 to 7 months. Replacement cows up to 8 years of age were selling for $750 to $775 per head at this market.

General economic conditions for the cattle industry look good for several years, barring an outbreak of disease or other publicity that would weaken demand.

SWINE
The big news in the hog industry in mid-October was the Commerce Department's decision that Canada had dumped hogs on the U.S. market below cost, causing adverse conditions for U.S. producers. A tariff of about 14 percent of value on live hogs crossing the border from Canada (excluding breeding stock and pigs from one company) starts as soon as the findings are printed in the Federal Register. At current prices, this tariff will be about $4 to $5 per head on isoweaned pigs, $7 to $8 on feeder pigs, and $17 to $20 per head for slaughter hogs.

At the time this material is being prepared, it is not clear just what the short-run implications of the tariff will be. It should reduce the negotiated price of hogs in Canada by about the amount of the tariff. However, we have heard that at least some U.S. pig feeders are agreeing to split the amount of the tariff with the Canadian producers for isowean and feeder pigs. We also believe a high percent of the slaughter hogs in Canada are priced with a contract between the producer and packer. If so, the price of these contract hogs may not be affected by the tariff, at least not until the contract expires.

How long the tariff will last is not known. It will be revisited by the Commerce Department in 2005. We do hope the tariff will stop the buildup in the Canadian breeding herd.

Demand for pork and especially live hogs continued very strong through August. For January to August, our demand index for live hogs was up nearly 12 percent compared to the same period in 2003. Cash hog prices in September were unbelievably strong. We believe the odds are high that January to September demand index will show more than 12 percent growth. Demand for pork at the consumer level was up 3 percent for January to August 2004 compared to 2003.

Slaughter hog prices declined seasonally in early October and are expected to hold in the low to mid $40s at the terminal markets through the fourth quarter.

Feeder pig prices rallied counter-seasonally in October. At least a portion of this strength was due to the low price of cornÑunder $2 a bushel in the Cornbelt.

Record corn and soybean crops were good news for the hog industry. USDA has estimated this year's corn crop at 11.6 billion bushels and the soybean crop at 3.1 billion bushels. USDA's October price estimate was for corn to average $1.95 per bushel in the 2004-05 marketing year.

USDA estimated the breeding herd on Sept. 1 was 1 percent larger than a year ago. We are not sure this growth has occurred. However, with productivity increasing 3 percent a year on average for the last 5 years, any growth in the size of the breeding herd is bad news.