Cattle/Beef: Low forage reserves continue to result in heavy cow and calf slaughter. Weekly year-to-date total calf slaughter is almost 28 percent above last year’s cumulative year-to-date total for the same period, while production is up only 6 percent. Farm-to-retail price spreads are increasing seasonally, along with increasing fed cattle and retail prices, and byproduct values are nearing record levels. Forecast beef exports for 2007, while up from the 2006 total, were reduced somewhat due to slow growth in shipments to major Asian markets.

Dairy: Rapidly rising feed prices have limited production increases. The smaller production expansion in light of strong demand should boost prices for milk and dairy products in 2007. Exports of dry products continue to sharply raise prices in that segment of the market.

Cattle/Beef

Inadequate Forage Supplies Induce Continued Heavy Cow-Calf Slaughter

Dressed weights for calves are averaging 12 to 16 percent below levels for the same period in 2006. There are at least two reasons for the lighter weights. Increased feed prices are limiting incentives to feed calves to weights equal to weights for the same period in 2006. Further, as a result of continued low forage supplies, both standing and harvested, cow-calf pairs are being sold, then split for slaughter. As a result, calf slaughter is 27 percent (weekly basis) above year-earlier levels, while veal production is only 5 percent above year-earlier levels. Cow slaughter continues at an atypically high rate, given January 1, 2007 cow inventories. Despite heavy cow slaughter levels, breaker cow prices (Sioux Falls) remain in the upper- $40 per cwt to low-$50 range.

January 2007 net placements in feedlots of 1,000-plus head were down 25 percent from January 2006, a significantly lower number that reflects high placements earlier in 2006 due to dry conditions. These were the lowest January placements since 1996. Fed cattle prices increased during the last part of February, and could average around $90 to $91 per cwt for the first quarter of 2007, despite continued large feedlot inventories.

Although up almost 3 percent from January 2007, retail prices are relatively steady compared with year-earlier prices. February 2007 prices for Choice beef, at $4.05 per pound, are nearly unchanged from February 2006’s $4.06. Farm-to-retail margins are increasing seasonally, and byproduct allowances, at $9.79 per cwt, are nearing record levels.

USDA forecasts for beef export volumes were reduced for all four quarters of 2007, mainly reflecting slow growth in exports to Asian markets. Exports to Japan edged up only slowly when the market reopened last fall and don not appear to be accelerating in early 2007. U.S. exports have been constrained by a limited supply of age-verified cattle in the United States and by occasional suspension of exports from packers sending nonapproved products in their shipments. In the past, such suspensions have been lifted when the companies demonstrated they had corrected their procedures to prevent future violations. Also, the Japanese government has balked at approving new plants for the export verification program run by AMSUSDA. Japanese demand for U.S. beef has been solid in the food service sector, but retail demand remains limited. The extensive customs inspection process in Japan is also slow and burdensome for the businesses involved. Exports to South Korea remain stymied by the zero-tolerance policy for bone fragments. The United States is negotiating access for a wider array of products, but no agreements have been reached to date. Total 2007 beef exports are now forecast at 1.345 billion pounds, which is still up 17 percent from the 2006 total of 1.152 billion pounds.

Dairy

Small 2007 Milk Production Increase Presages Higher Milk Prices for the Year

Rapidly rising feed prices have continued to raise costs for dairy producers. Corn and soybean meal prices have risen, but probably more important for dairy producers, have been high prices for alfalfa hay. Hay prices are expected to rise further as supplies tighten, but should decline later this year as supplies increase with expected improved conditions this spring. Relief in the form of higher milk prices for 2007 could improve profitability for the most efficient producers. The change in this month’s forecast is a result of lower-than-expected production per cow in the first quarter of this year. Cow numbers and milk production are unchanged from last month’s forecast for the remainder of the year. Production per cow is expected to be 20,260 pounds, and total 2007 production is expected to reach 184.1 billion pounds, 1.3 percent above 2006.

Prices for all major dairy products this year are forecast above 2006 levels. January 2007 stocks for butter and total cheese exceeded January 2006 by 24 percent and 11 percent respectively, according to the most recent Cold Storage report. Year-overyear production for both butter and total cheese has also trended higher in January, up 2.5 percent and 6.7 percent respectively. Given the strong ongoing demand for cheese and dry products, the relatively small increase in 2007 milk production could tighten supplies later in the year and draw down the higher beginning stocks. As a result, prices in 2007 are expected to be higher than in 2006. In 2007, the cheese price is expected to be between $1.330 and $1.390 per pound, while the butter price is forecast between $1.240 and $1.330 per pound. Butter prices are unlikely to increase compared with other products because butter supplies are ample and should remain so for the year.

NDM demand remains strong, and global supplies are especially tight. In 2006, exports are estimated to account for around 40% of U.S. NDM and skim milk powder (SMP) production, a situation likely to continue into 2007. Australian production could take this year and next to rebound from weather-related problems, and European Union milk production is moving into higher value cheese production, away from dry products. U.S. whey exports are also expected to trend higher in 2007. Consequently, domestic prices for NDM and whey are expected to continue to strengthen this year. The annual 2007 NDM price is forecast between $1.110 and $1.160 per pound. The whey price should climb to between 59.5 and 62.5 cents per pound for the year.

Forecast higher prices for dairy products point to significantly higher prices for all milk classes. The Class IV milk price is expected to climb throughout 2007, averaging $12.95 to $13.65 per cwt for the year. The Class III price is projected to rise to an average $14.10 to $14.70 per cwt for the year. The reported all-milk price is expected to be sharply higher in 2007 – it could reach $15.50 to $16.50 per cwt by the fourth quarter and will likely average $15.05 to $15.65 per cwt for the year.

Further Information

For more information view the full Livestock, Dairy and Poultry Outlook - March 2007 (pdf)

March 2007