Uncertainty will continue to rule the 2007 U.S. cattle market, and farmers should continue to monitor the many factors that can cause significant price swings, says Walt Prevatt, Auburn University Extension economist.

Prevatt presented his market outlook during the 2006 Southern Region Agricultural Outlook Conference held in Atlanta.

“Cattle farmers should monitor several factors, including the length, extent and severity of the drought, growing supplies of broilers and pork, export and import sales of beef, broilers and pork, and consumer beef demand,” says Prevatt. “The cattle markets could experience some volatile movements with abrupt changes in any of these factors or a combination of these factors.”

The U.S. net beef supply, he says, is expected to show some significant changes during 2007 compared with 2006. “Domestic beef production is forecast to increase by 0.8 billion pounds or 3.1 percent, beef and veal imports are expected to post a minor increase of 0.1 billion pounds, and beef and veal exports are expected to increase by about 0.4 billion pounds. Assuming these increases are realized, the U.S. net beef supply during 2007 will increase by about 0.6 billion pounds or 2 percent,” says Prevatt.

Assuming there's a stable domestic consumer beef demand, the combination of an increase in the U.S. net beef supply coupled with increases in the net broiler supply and the net pork supply will pressure farm-level beef cattle prices lower during 2007, says Prevatt.

“Any changes in production and/or export and import levels of these three competing meats could cause major movements in beef prices,” he says. “Each industry is very capable of significantly altering production levels and is subject to wide changes in export and import levels.”

The highest average prices for all classes of cattle, says Prevatt, are expected during the first quarter of 2007. The lowest average prices are expected during the third quarter for choice slaughter steers and during the fourth quarter for all other classes of beef cattle, he adds.

For 2007, USDA has forecast that choice slaughter steers (Nebraska basis) will post an annual average in the low to mid-$80s per hundredweight. Alabama feeder steers (750-pound) are expected to average between $98 and $104 per hundredweight, Alabama feeder steer calves (550-pound) between $110 and $115 per hundredweight, and Alabama boning utility cows in the mid-$40s per hundredweight. Breeding heifer, cow and bull prices are expected to show minor decreases of between 3 to 6 percent as herd rebuilding continues, says Prevatt.

“The simultaneous increases in the supplies of beef, broilers and pork are expected to pressure meat prices lower during 2007. Driving the increase in net beef supply includes an increase in cattle inventory, heavier carcass weights, and larger levels of beef imports.

“U.S. cattle inventories are expected to increase through 2010, with total cattle inventories expected to increase between five to seven million head. During this same time period, these increases are expected to increase domestic beef production by about 3 to 4 billion pounds and reach about 28 billion pounds of beef production by the end of the decade. These higher levels of beef production most certainly will result in lower beef prices,” he says.

Additionally, a significant factor in the net beef supply during the next several years will be the beef balance of trade or beef exports minus beef imports, says Prevatt. “In 2006, U.S. beef exports are expected to total about 1.1 billion pounds while U.S. beef imports are expected to total about 3.2 billion pounds. This results in a beef trade deficit of about minus 2.1 billion pounds. Thus, as U.S. beef production totals grow over the next several years, it is extremely important that we realize significant improvements in U.S. beef exports if we want to avoid burdensome levels or net beef supplies. It would be highly advantageous to cattle farmers if we could grow our beef export levels similarly to the expected increases in domestic beef production,” he says.

U.S. beef exports are expected to show significant growth during 2006 and 2007, he says. “The opening of beef trade with Japan and South Korea during 2006 offers added opportunities to increase U.S. beef exports in 2007. But future export growth is expected to be gradual. It may take three to five years to reach pre-2003 levels. However, the increase in U.S. beef export levels should help provide price support during a time of expected increases in U.S. beef production. U.S. export levels of beef and competing meats likely will have a significant impact on U.S. beef prices during the next couple of years.”

As should be expected, the 2007 cattle market has the potential for some big price swings, says Prevatt. “Abrupt changes in the levels of any of these factors we've discussed could add much volatility to cattle market prices in 2007. However, cattle market prices should remain cyclically strong and average at 3 to 6 percent below 2007 prices.”