Assessment of the Cattle and Hog Industries Calendar Year 2000

General Economic State of the Cattle and Hog
Industries
Cattle Industry
Cow-calf producers can expect positive returns and higher calf prices in 2001 than in
2000. 1 Stocker operations, which purchase calves and sell feeder calves, may experience
profit pressures due to competition for a declining number of calves. 2 Projected fed cattle
and input prices suggest that cattle feeders can expect positive margins in 2001. 3
The United States Department of Agriculture’s (USDA) Economic Research Service
(ERS) estimates that feeding margins were positive between December 2000 and
February 2001 after being negative for much of 2000. 4 USDA’s World Agricultural
Outlook Board (WAOB) projects that fed cattle prices will remain at relatively high
levels, averaging about 8 percent higher than in 2000, as the number of cattle slaughtered
and volume of beef produced decline relative to last year. 5 ERS reports that large stocks
of corn and soybeans are expected to keep feed prices relatively low, but higher feeder
cattle prices may restrain returns to fed cattle producers. 6 ERS predicts that feeder cattle
prices will rise about 3 percent in 2001, following a 13-percent increase in 2000.
Herd Expansion
Adjustments in cattle production historically have resulted in a cyclical pattern (cattle
cycle), in part, because cattle have a relatively long reproductive cycle. A typical cycle
consists of about 6 years of growth in the number of cattle as the size of breeding herds
expands, followed by 1-2 years of relatively constant numbers (consolidation), then 3-4
years of declining cattle numbers as breeding herds are reduced (liquidation). As
producers retain heifers for breeding during expansion, the number of fed cattle available
for slaughter typically declines, putting upward pressure on fed cattle prices. The
opposite price effect occurs during liquidation, when producers send a higher proportion
of heifers (as well as cows) to slaughter. 7
Expansion of the cattle herd may provide some upward stimulus to fed cattle prices in the
second half of 2001. 8 The cattle cycle has been in a liquidation phase for about 5 years.
1 Hurt, Chris, “High Calf Prices Stimulate Slow Beef Cow Expansion,” Livestock Price Outlook, No. 2, University of Illinois and
Purdue University, February 2001. http://web.aces.uiuc.edu/farm.doc/marketing/livestockoutlook/0201cattle.pdf (20 Feb. 2001).
2 Economic Research Service, Livestock, Dairy and Poultry Situation and Outlook, LDP -M-80, ERS-USDA, February 28, 2001.
3 Margins are the difference between the amount producers receive for an animal and the cost to the producers for the feeder animal,
feed, and other variable inputs into feeding.
4 Economic Research Service, Livestock, Dairy and Poultry Situation and Outlook, LDP -M-80, ERS-USDA, February 28, 2001.
5 World Agricultural Outlook Board, World Agricultural Supply and Demand Estimates, WASDE-372, Office of the Chief
Economist, USDA, March 8, 2001.
6 Economic Research Service, Livestock, Dairy and Poultry Situation and Outlook, LDP -M-79P, ERS-USDA, January 24, 2001.
7 Mathews, Kenneth H. et al., U.S. Beef Industry: Cattle Cycles, Price Spreads, and Packer Concentration, Technical Bulletin No.
1874, ERS-USDA, April 1999.
8 Collins, Keith, “Statement Before the U.S. House of Representatives Committee on Agriculture,” Office of the Chief Economist,
USDA, February 14, 2001.
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