Cattle/Beef:

Prices across the beef/cattle spectrum are declining, consistent with seasonal price patterns and dropping despite relatively tight supplies of market-ready cattle. Commercial cow slaughter continues at relatively high levels, in part due to extremely dry conditions in the Southeastern, Southwestern, and Intermountain areas of the United States. Forage, range, and crop conditions of the Central part of the country are favorable.

Dairy: Global supplies of milk and dairy products remain tight, keeping international prices high. Domestic demand remains very strong, especially for butter-powder. Market prices will ration demand this year and next, as higher feed prices will likely limit the rate of production expansion.

Cattle/Beef

Cow Slaughter Runs Counter to Seasonal Patterns

The Midwestern corn and soybean crops are off to a good – if somewhat late – start, with most States reporting crop conditions mainly of Fair to Excellent. Pasture and range conditions are similarly rated, with most regions, except the Southwest, Intermountain West, and Southeast, reporting mostly Good to Excellent conditions. The first hay cutting of the season is well underway in most areas. About one-fifth of the 2007 hay crop is in areas currently experiencing extremely dry conditions. Replenishing hay stocks will take some of the edge off the impacts from dry conditions. Hay stocks on May 1, 2007 were only about 70 percent of stocks on May 1, 2006 and 54 percent of stocks on May 1, 2005. It is too early to tell what hay stocks will look like going into winter 2007/08.

Commercial beef and dairy cow slaughter continues at much higher levels than expected thus far in the second quarter of 2007, given the January 1, 2007 cow inventory and typical seasonal cow slaughter patterns. Almost 53,000 dairy cows have been slaughtered as a result of the Cooperatives Working Together (CWT) fourth herd retirement round. The CWT program is aimed at reducing milk production and promoting dairy product exports and has been extended through the end of 2008. Extremely dry conditions in the Southeast and Southwest also continue to motivate both beef and dairy cow slaughter above seasonal expectations.

Cow slaughter will likely make inroads into January 1, 2008 cow inventories if it continues at current levels. Despite the heavy slaughter, cow prices remain relatively strong, in the low-to mid $50s, as do prices for 90-percent lean beef, which comes primarily from cull cows and bulls. Calf slaughter has declined from its peak earlier in 2007, and dressed weights of calves have begun to increase. These changes may be signaling the end of young calf slaughter that was induced by high feed prices and by the dry conditions and limited late winter-early spring forage supplies.

May 2007 prices for feeder cattle (Oklahoma City, Medium and Large No. 1, 750- 800-lb steers) were about 3 percent above May 2006 prices and reflect a weight premium in response to high feed costs due to ethanol demand for corn. Lighter weight feeder cattle prices received support from much-improved pasture and forage conditions and from fed cattle prices that were high enough to allow cattle feeding profits and positive packer margins. In May 2007, lighter weight feeder calves at Oklahoma City were even with or slightly below prices for May 2006.

Seasonally declining spreads between Choice and Select beef cutout values are receiving a boost from relatively tight supplies of market-ready fed cattle of all grades and are currently the biggest positive factor for fed cattle prices. Given that abnormally large numbers of cattle were placed on feed last summer, fall, and winter, the resulting relatively large cattle-on-feed inventories and relatively low marketings from 1,000-head-plus feedlots suggest that large numbers of cattle could come to market over the next few months. If this happens, prices could face downward pressure, in addition to seasonal declines from spring price peaks.

Dressed weights appear to have bottomed out, and may be beginning to increase seasonally into fall, which would add to beef supplies and put downward pressure on the whole beef/cattle price complex. Based on weekly average data, May 2007 Choice cutout values were about 9 percent above May 2006 values, while May 2007 Select cutout values were 16 percent above the year-earlier values. May 2007 prices for 50- and 90-percent lean processing beef were 58 percent and 15 percent above prices for May 2006.

Average monthly retail Choice beef prices for May 2007, at $4.30 and up by 9 percent over May 2006 prices, were supported by the retail prices of other meats. Other factors that have supported retail prices recently are slowly increasing export sales, tight supplies of market-ready cattle, and seasonal price patterns that generally peak in the spring.

The beef import forecast for the second quarter was unchanged from last month’s, despite pressure from higher-than-expected domestic cow slaughter that has remained high through most of this period. Beef imports into the United States from Australia, New Zealand, and Uruguay provide additional processing beef that, along with domestic cow and bull beef, is mixed with 50-percent trim from fed cattle to make ground beef. Forecast beef exports were raised slightly, mainly on continued (though gradual) improvements in sales to major Asian markets. In late May the World Animal Health Organization – known by its French acronym, OIE – designated the United States as having “controlled risk status” for bovine spongiform encephalopathy, or BSE. This designation reflects the OIE’s view that beef produced in the United States is safe for export, since BSE control measures such as feed bans and removal of specified risk materials result in negligible risk to consumers. However, the OIE standards are only guidelines. Individual countries may adopt differing standards, and those countries that do accept OIE standards must still undertake the bureaucratic processes to revise their rules and procedures.

Dairy

Commercial Use of Milk Rises Faster Than Production Expansion; Expect Higher Prices

Higher dairy product prices and anticipated moderating feed prices appear to be ameliorating the expected reduction in dairy herd size. Culling rates have declined, as higher milk prices have kept some cows in the herd despite high feed prices. The herd size is projected to be 9.115 million head for 2007, virtually unchanged from 2006. Production per cow will likely move above the 2006 level to 20,220 pounds. A return to more normal pasture conditions in most of the country could ease alfalfa prices and encourage feeding, but continued drought in most of the southeastern States will continue to plague milk production in that region. Total milk production in 2007 is expected to be about 184.3 billion pounds. In 2008, cow numbers are forecast to rebound slightly to 9.125 million pounds and production is forecast to increase to 188.4 billion pounds. The milk–feed price ratio is projected to climb into the 2.9 range for this year and could be slightly higher in 2008, and these levels would likely signal expansion.

Growth in commercial use of all products will continue to outpace production growth in 2007, with production increases catching up in 2008. Continued strong demand for dairy products, especially dry products, is having an impact throughout the dairy complex. Cheese prices have risen through May, but cheese stocks at the end of April were higher year-over-year, with most of the rise in other than American-style cheeses. Some of the stock building may be in anticipation of even higher prices later in the year. High prices for nonfat dry milk (NDM) may be increasing costs for Italian-type cheese manufacturers. Prices for cheese are expected to range from $1.605 to $1.645 per pound in 2007. Some pullback is expected in 2008, with prices forecast from $1.485 to $1.585 per pound.

Tight global supplies for dry milk products are expected to keep domestic prices for NDM high through 2007. European Union stocks are low and milk production there is moving into cheese. Australian production has been significantly reduced because of drought and is not expected to recover this year. The average NDM price is expected to range from $1.610 to $1.650 per pound in 2007. Some easing could come toward the end of 2008; however, prices will remain high by historic standards. The 2008 forecast is for the average NDM price to be $1.560 to $1.630 per pound.

Domestic butter prices are forecast above historic norms due to continued strength in demand and limited production growth. In 2007, the average butter price is expected to average from $1.370 to $1.440 per pound. For 2008, the forecast range is $1.350 to $1.480 per pound. Whey prices, which have also risen, will likely plateau at new higher levels, averaging 68.5 to 70.5 cents a pound in 2007 and remaining close to 2007 prices at 65.0 to 68.0 cents a pound in 2008.

The tight supply situation in the butter-powder market will push the average annual Class IV price to the $17.85 to $18.35 per cwt range in 2007, as Class IV prices are expected to continue to rise throughout the year. The product market this year presents the unusual situation that the Class IV price is the driver for Class I prices. The Class III price is projected to rise to an average $17.30 to $17.70 per cwt for the year. The reported all milk price is expected to be sharply higher in 2007 and will likely average $18.55 to $18.95 per cwt for the year. Strong milk prices will likely continue into 2008. The Class IV price is forecast to average $17.25 to $18.35 per cwt, and the Class III prices $15.95 to $16.95 per cwt. The all milk price is forecast to average $17.90 to $18.90 per cwt for 2008, a slight decline.

Further Information

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

June 2007