2. K-State Research & Extension Cattle Outlook James Mintert, Ph.D. Professor & Extension Ag. Economist, Livestock Marketing Department of Agricultural Economics Kansas State University

3. K-State Research & Extension Issues Farm Policy Seasonality in Steer Feeding Cattle Cycle Weights Cattle On Feed & Placements Trade Demand

4. K-State Research & Extension For Updated Livestock Marketing Information Visit The K-State Livestock & Meat Marketing Web Site www.agecon.ksu.edu/livestock

5. K-State Research & Extension “This squall between the packers and the producers of this country ought to have blown over forty years ago, but we still have it on our hands…” Senator John B. Kendrick of Wyoming (1919)

6. K-State Research & Extension Johnson Amendment Unlawful for meatpackers to own, feed or control livestock for more than 14 days prior to slaughter. Coops exempt »if a majority of the ownership in the coop is held by active members who own, feed or control livestock and provide them to the coop for slaughter. Packers that slaughter less than 2% of annual slaughter of each type of livestock are exempt.

7. K-State Research & Extension Control Controversy Harkin-Grassley Amendment »Unlawful for packers to own or feed livestock directly through a subsidiary or through an arrangement that gives the packer operational, managerial or supervisory control over the livestock or over the farming operation that the producer is no longer materially participating in the management of the operation with respect to the production of the livestock

8. K-State Research & Extension What Does It Mean? Conflicting Legal Opinions Tremendous uncertainty about what type of business arrangements would be legal Some lawyers believe that virtually all strategic alliances and marketing agreements between packers and producers will be deemed illegal Likely that “material participation” will be settled on a case by case basis

9. K-State Research & Extension Packer Concentration Increased Dramatically Source: USDA & Sparks Co., Inc.

10. K-State Research & Extension Concentration Driven By Cost Considerations Historically, gross profit margins have been about the same for all major meat packers Differences in profitability across firms was attributable to differences in costs Low cost firms came out on top Economies of size in slaughtering and fabrication were very large (Sersland, Duewer & Nelson; McDonald; Paul)

11. K-State Research & Extension Vertical Integration Attractive To Investors Because Packer & Producer Profits Negatively Correlated Source: Sparks Co., Inc.

12. K-State Research & Extension Same Story In Beef Except Correlation Is Not As Strong Source: Sparks Co., Inc.

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14. 2001-2002 Isn’t The First Time Cattle Feeders Have Lost A Lot of Money

15. K-State Research & Extension Late Spring & Summer Placements Tend To Be More Profitable & Carry Lower Risk

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17. Seasonality of Prices & Performance Has A Big Impact On Profitability

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19. Liquidation Has Been Underway for 6 Years

20. K-State Research & Extension Resulting In Yet Another Herd Reduction Current inventory is about 27% smaller than in 1975

21. K-State Research & Extension Average Cattle Cycle Is About 10 Years But Current Cycle Just Completed 13th Year

22. K-State Research & Extension When Will Cow-Herd Expand? Forage Availability Will Be Critical

23. K-State Research & Extension But A Smaller Herd Doesn’t Necessarily Mean Smaller Production

24. K-State Research & Extension Heavier Carcass Weights Tell The Story

25. K-State Research & Extension Weights Have Been A Big Problem In 2002 But Have Declined More Than Usual Since January

26. K-State Research & Extension Weight Increase Not Because of Feedlot Performance

27. K-State Research & Extension Longer Feeding Periods Are The Problem

28. K-State Research & Extension Negative Basis Structure Encouraged Feeding To Heavier Weights

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30. But Basis Structure Has Changed Will It Lead To Shorter Feeding Periods?

31. K-State Research & Extension Will Weight Decline Extend Into May?

32. K-State Research & Extension Cattle On Feed Below A Year Ago, But Still Large By Historical Standards

33. K-State Research & Extension And Placements Rose During February

34. K-State Research & Extension Placement Increase Focused On Heavy Cattle Which Will Be A Problem By Late Spring

35. K-State Research & Extension Non-Fed Slaughter Below A Year Ago But Beef Cow & Calf Slaughter Up In Late March

36. K-State Research & Extension Small Placements Last Fall Pushed Slaughter Pace Below 2001 During March

37. K-State Research & Extension But Heavy Weights Kept Production Pace Up

38. K-State Research & Extension Long-Run Beef Export Growth Has Been Phenomenal

39. K-State Research & Extension And The Gap Between Our Imports & Exports Has Narrowed Dramatically

40. K-State Research & Extension Net Imports Up Recently But Still Far Below Early 1990’s Source: LMIC

41. K-State Research & Extension Weak Economies In Importing Countries & BSE In Japan Mean Exports Will Be Weak In 2002

42. K-State Research & Extension January Exports Down 1.8%

43. K-State Research & Extension Exports To Japan Down 33% vs. Prior Year From November Forward

44. K-State Research & Extension Summary 2002 annual beef imports up 1 to 3% 2002 annual beef exports down 3 to 5% Weights will continue to decline »but remain above last year through summer U.S. beef production above 2001 until fall »Annual total near 2001 level

45. K-State Research & Extension Best News In Beef Industry In 20 Years

46. K-State Research & Extension Demand Showed Signs of Strengthening In 1999, 2000 & Again In 2001

47. K-State Research & Extension Another Look At Demand Compute a demand index The index accounts for changes in beef quantity The index relates current beef prices to prices expected if demand was held constant at some prior year’s level

48. K-State Research & Extension Domestic Retail Beef Demand Is Improving Retail Choice Beef Demand Increased 5.3% during 2002

49. K-State Research & Extension Cyclical Peak In Slaughter Cattle Prices Still Ahead Annual Average Steer Prices. W. KS 11-13 Cwt.. 35 40 45 50 55 60 65 70 75 80 85 7577798183858789919395979901 Year. Steer Price ($/Cwt.). Source: USDA

50. K-State Research & Extension But This Year’s Average Will Be Near Last Year Year & QuarterKansas Slaughter Steer Price 70.71 70-73 67-70 72-75 70-72 2002.1 2002.2 2002.3 2002.4 2002 Avg.

51. K-State Research & Extension Futures Anticipate A Decline To The Mid-$60’s This Summer

52. K-State Research & Extension Are Futures Oversold?

53. K-State Research & Extension Are Futures Oversold?

54. K-State Research & Extension 2002 Feeder Cattle Prices In Low to Mid-$80’s, Strongest Prices In Last Half of Year Dodge City 7-8 Cwt. Annual Average Steer Prices. 30 35 40 45 50 55 60 65 70 75 80 85 90 95 7577798183858789919395979901 Year Steer Price ($/Cwt.). Source: USDA

55. K-State Research & Extension Declining Corn Prices Helped Boost Feeder Cattle Prices Since Mid-1990’s

56. K-State Research & Extension Feeder Futures Suggest High $70’s Low $80’s Trade But Grain Prices Will Be Important

57. K-State Research & Extension Are Feeder Futures Oversold?

58. K-State Research & Extension Summary 1. Cow-Calf Producers In Drivers Seat 2. Tougher For Margin Operators Cattle Finishers Still Losing $ This Winter Profits Could Prove Elusive Until Fall 3. Long-Term Outlook Cyclical Peak In Cattle Prices Is Still Ahead Major Risk Is Beef Demand Domestic Beef Demand Rebounding More Quickly Than Export Demand

59. K-State Research & Extension For Updated Livestock Marketing Information Visit The K-State Livestock & Meat Marketing Web Site www.agecon.ksu.edu/livestock