LIVESTOCK REPORT
By Glenn Grimes

CATTLE

Fed cattle prices held in the upper $80s through February. The odds are extremely high that we have had the high in fed cattle prices for this production and price cycle. Not only have we had the peak in prices, we have also probably had the high annual price for the cycle.

The high annual price probably occurred in 2005 when five-market steer prices averaged $88 per cwt. for the year. The peak in the price cycle occurred in November 2003 when the five-market steer price reached $100.70 per cwt. for the month. The peak for a day was around $120 per cwt.

We believe feeder cattle prices have also reached their peak for this production and price cycle. The high in prices for 400+ lb. steer calves at Oklahoma City occurred the week ending Feb. 11, 2006, at $163.75 per cwt. On a per-head basis that was over $650 for a 400 lb. calf. The odds are high that the producer who sold that calf made more money on him than the backgrounder or feeder.

Beef exports in 2005 were up 49.6 percent from a year earlier but were 73 percent below the 2003 level before the U.S. cow was found with BSE. Earlier this year the Japanese market opened briefly for boneless beef from cattle under 20 months of age. But, when veal with some bone was found at the Tokyo airport, the Japanese market was again closed to U.S. beef. How long it will take to get the market opened again is not predictable. Japan is using emotions and politics to restrict imports of U.S. beef.

Live cattle imports in 2005 were 32.4 percent more than in 2004 because in mid-2005 our border with Canada was opened to cattle under 30 months of age. However, live cattle imports last year were 27 percent less than in 2002.

Our demand index for beef at the consumer level was down 3 percent for 2005 compared to 2004. We believe this is not a negative sign because beef demand had increased nearly 8 percent between 2003 and 2004. However, it is not good news that during the 3 months of November 2005 through January 2006 beef demand fell 5 percent compared to this period a year ago.

The good news is that the demand for fed cattle in 2005 was up nearly 1 percent from 2004, and demand for fed cattle in the three months of November 2005 through January 2006 was up over 5 percent from a year ago.

Larger supplies of cattle in 2006 are expected to increase the beef supply and result in lower fed cattle prices in 2006. Feeder cattle prices are also expected to average lower in 2006 than in 2005 as cattle feeders try to improve their margins.

SWINE

Cash hog prices were below the cost of production for average-cost producers for a short period in early 2006. However, unless Asian flu reduces poultry exports and increases competition from low cost poultry in the United States more than we believe likely, cash hog prices will probably be high enough to provide a profit for the average-cost producer during the first nine months of 2006.

If our data is correct and the breeding herd inventory is up 1 to 2 percent on March 1, pork production is likely to be large enough to push prices below breakeven for the fourth quarter of 2006 and below cost of production in 2007.

Pork exports in 2005 set a new record high for the 14th consecutive year. For the U.S. pork industry, the value of exports of pork and byproducts translated to $25.44 per head of hogs slaughtered in the United States last year.

This compares with less than $2 per head in 1986, some 20 years ago.

For hog producers, we believe the increase in pork exports in 2005 over 2004 added about $17 per head to their gross income. My calculations show that U.S. hog producers have benefited to the tune of nearly $7 billion since 1986 due to the growth in exports.

In fact, this is probably a conservative estimate because we only give credit for an increase in exports to hog prices in years when there was growth in exports.

In other words, for us to calculate how much exports add to producers’ income in 2006, exports must increase in 2006 over 2005.

At least three groups are responsible for the growth in pork exports: the U.S. government, commercial packers and pork producers through the check-off program. If producers are responsible for one-third of the growth, as I believe likely, the foreign marketing effort of pork producers has resulted in more than doubling their return from check-off dollars in the past 20 years.

Demand for pork at the consumer level in 2005 was down a little over 4 percent from the strong demand of 2004. The good news is that from November 2005 to January 2006 pork demand at the consumer level was down only about 3 percent from this period a year ago.

Also, the demand for live hogs in 2005 was down only about 1 percent from 2004. Remember, the demand for live hogs in 2004 was up about 8 percent from 2003.

Cash feeder pig prices have held strong through early 2006 and are expected to continue relatively strong at least through spring this year.