Comments from the director

Iowa Beef Center Director Dr. John Lawrence has a monthly column published in Iowa Cattlemen magazine discussing current happenings at the Iowa Beef Center and issues in the beef industry. His March column appears below. Also each month, he co-writes an article discussing the cattle market outlook with Shane Ellis, an ISU Extension livestock economist. To view that column, click here. To view previous columns, click here.

Demand for corn, crop acres contributing

to pressure on beef cow herds

As we discussed in the cattle outlook article, the U.S. herd is contracting after a brief expansion phase. While the drought does have some impact, the demand for corn and crop acres is also contributing to the pressure on beef-cow herds.

Like the 1970s, it appears that agricultural prices have moved to a new plateau. While the last plateau is more of a hill, this one appears to have more of a distant horizon. As most of you recognize, there are similarities between the 1970s and today. Corn prices increased from $1.08 per bushel for the 1971-72 crop year to $3.02 for the 1974-75 crop year, nearly a $2-per-bushel increase. Corn acres planted increased from 66.9 million in 1971 to 84.5 million in 1976. Beef cow inventories peaked in January 1975 at 45.7 million and declined to 37.1 million by January 1979, a decrease of 8.65-million head. While I don’t think we will lose 8 million more beef cows, the $2-per-bushel corn price increase between the 2005-06 and 2007-08 crop years has triggered more corn production -- the largest planted acreage since 1944 -- and a shift from pasture to plow in the Cornbelt.

Table 1 shows the change in beef cow and beef replacement heifers in: the state of Iowa; the rest of the Cornbelt (Minnesota, Missouri, Wisconsin, Illinois, Michigan, Indiana and Ohio); selected states bordering the Cornbelt (Nebraska, South Dakota, Tennessee and Kentucky); and the rest of the nation. Of the decrease in U.S. beef-cow numbers, the Cornbelt and surrounding states account for all about 5,000 head in that drop and account for 57 percent of the decrease in beef heifers. While more than 60 percent of Kentucky and Tennessee’s pastures were rated at poor or very poor, Nebraska and South Dakota’s range and pastures were rated at 61 percent and 51 percent as good to excellent, respectively. Thus, some of the herd decrease may be weather related, but corn acreage also contributed. Corn acreage in the Cornbelt and four bordering states increased by more than 10 million acres in 2007, while soybean acreage decreased by less than 9 million acres. Pasture and hay acres were among the land changes made.

The U.S. Department of Agriculture also reports that there is a small decrease in the number of cattle on feed in Iowa compared to the year before. The 2008 January cattle report indicated there was 860,000 head of cattle, with 570,000 (66 percent) in feedlots that have more than 1,000-head capacity. Compared to January 2007, these lots increased inventory by 50,000 head, while the smaller lots reduced their inventories by 62,000 head. The current corn prices, which are turning more pastures to plows, will also cause more Iowa farmers to sell corn rather than feed it. Figure 1 shows the change in where Iowa cattle are being fed.

There is a lot of excitement around feedlot expansion in the state, but we seldom see the decrease in feeding in the smaller lots. The 2007 Census of Agriculture forms you have received is the only way to know if the numbers are correct. So I encourage you to complete and return the census form.

The same forces that are reducing pasture acres are also generating distillers grains and solubles. For every person who sees a challenge with higher pasture costs, there is another one who sees opportunities to reduce feed costs by using ethanol co-products. The question is how?

Iowa State University continues to explore ways to use co-products to stretch pastures, improve feedlot performance, reduce winter feed costs, improve storage and other strategies to improve the utilization of co-products to improve beef producer profitability. In the last two years, the Iowa Beef Center’s faculty and staff have participated in more than 100 meetings on feeding co-products, and they have several research projects currently under way. The findings and recommendations are available online at www.iowabeefcenter.org or from your local county extension office. The newly released 2008 Animal Industry Report contains 13 articles about co-product research for cattle producers, and there are 13 more articles in the previous four annual research reports. There also are several extension fact sheets and spreadsheet calculators available on our Web site to help you better utilize co-products.

The Iowa Beef Center (IBC) also put together a series of articles on the cows or plows question that many farmers are asking, which may be viewed here. This series looks at improvements in pasture management to run more cows on fewer acres, supplementing pasture with co-products, wintering cows on co-products and low-quality forage, and dry-lotting cows. There also is a link on IBC’s site to a revised publication on dry-lot cow management that was originally prepared the last time these questions arose.

Whether you plan to sell the herd or not, I encourage beef-cow producers to do their homework. The economics for beef-cow herds have changed in recent years from record-high calf prices and inexpensive feed to higher-priced feed and cheaper calves. The strategy that has worked in the past may not be as successful in the coming years. As you consider your options, please let us know how we may help.

U.S. cattle herd contracting after brief expansion

The U.S. cattle cycle has always been one of the surest bets in agriculture, but like many things we observe today, it has changed. The U.S. Department of Agriculture’s January cattle report indicated that the U.S. cattle inventory is contracting after only three years of expansion (Figure 1). Since 1980, there have been peaks in 1982, 1996 and 2007. Two expansions lasted three years and one lasted six, but the two contractions lasted eight years each. These are observations of history, not forecasts of the future.

The 2008 cattle inventory of 96.7 million head is 27-percent smaller than its peak in 1975 and more than 18-million head smaller than the 1982 peak. While the inventory of all cattle increased for three years, from 2005-07, beef cow numbers increased for only two years, 2005-06 before decreasing to 2007 and now 2008 levels (Figure 2). 

There is less variation in the cycle from peak to valley now than there was in earlier years. Notice that since 1990, the year-to-year change in all cattle inventory has been 1 percent or less. The inventory cycle has dampened during the last 60 years, but price variation has not (Table 1). During the 1950s, we had year-to-year changes that ranged from negative 3.2 percent to a positive 7.3 percent. In the 1960s, there was little reduction in cattle inventory, but it grew by as much as 4.1 percent. Since then, the increases and decreases have been about equal in size, but the range is generally smaller than it was. Prices are more variable than inventories, and in the 1970s and 2000s, we saw larger price increases than decreases.

Under conventional wisdom, we are through the expansion phase of this cattle cycle and into the liquidation phase. If that is the case, we would expect to see increased cow and heifer slaughter for a period of time. The calf crop will decline further and ultimately lead to reduced beef supplies and higher prices, which will eventually encourage expansion, and the cycle will continue. This may not be a conventional cycle.

As shown above, the year-to-year changes in herd size have been smaller than previous cycles and may be again. The wild card to watch is how higher crop prices will impact calf prices and pasture costs. It will be difficult to expand the cow herd when calf prices are down and land prices are higher. See the Iowa Beef Center report for more analysis.
The January cattle report also estimates the total number of cattle on feed. This year’s inventory of 14.317 million head is the largest number of cattle on feed since 1973, but it’s only up 48,000 head from January 2007. Feedlots with 1,000 head or more account for 84.5 percent of U.S. cattle on feed inventory. In the 1,000-plus capacity feedlots, the number of steers on feed was up 1 percent from the year before, while the number of heifers on feed increased by 1.8 percent. So more heifers are in the feedlot and fewer are in the breeding pasture.

Third-quarter placements decreased by 5 percent, while fourth-quarter placements increased by 9 percent. The primary reason for the change in these numbers is because of when lighter-weight placements occurred (Table 2). In 2006, the drought pushed lighter cattle into the feedlot earlier than they did in 2007. As a result, third-quarter placements of lighter than 600-pound calves were 26-percent lower in 2007 than 2006. In fall 2007, more lighter-weight placements were going to the feedlots rather than wheat pastures, and there were more placements of cattle weighing less than 700 pounds than the year before. In both the third and fourth quarters, the placement of 700-799-pound cattle and cattle weighing more than 800 pounds increased, which should provide steady to higher beef supplies through the first half of 2008, unless weights decrease dramatically.

Beef prices also will be pressured from larger supplies of pork and poultry than the year before, as well as a weaker economy and consumer spending. Annual average fed cattle prices are forecasted to be slightly higher than 2007’s record of $92.61, but prices likely will be lower than the previous year at times.

To view previous columns, click here.

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