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There are several factors that affect the cattle market more than others, according to a Texas A&M economist. Dr. Ernest Davis, professor and extension economist for livestock marketing at Texas A&M University, said domestic beef production, competing meats, drought and food safety affect the cattle market more than anything else. Other factors include grain prices, herd liquidation and foreign trade. "Domestic beef production is the thing that affects our price the most," Davis said. "The more we supply, the more that price is going to come down on fed cattle, cattle, calves, all the way down. This is the number one thing we watch." This year, he said, calf prices are up because supplies are down, but domestic beef supply will be up because more cattle are being killed. "It will be 26.1 billion pounds, a new record," Davis said. "The reason we were able to do that is because we're killing more heifers." Heifers are a bigger part of the mix of feeder cattle. That means the feeder cattle supply is down. Food safety isn't an issue until there is an E.Coli outbreak. "Or we have an Oprah Winfrey outbreak," he said. Davis said that in economics that is what is known as consumer market avoidance. Feed grain supplies right now seems to be a moot issue; however, in 1996 when corn prices increased more than $2.50 per bushel, it was. "That's important to us when supplies are tight," he said. "For each dollar increase you get in a bushel of corn, you get a $10 to $12 increase in the price of a 500 pound calf." Davis said it looks like there won't be a record grain supply this year, but corn and grain prices will remain relatively cheap. "My price projections are for corn to go for not over $2.20 a bushel," Davis said. "Foreign trade is going to become more and more important to us every year," Davis said. Mexican feeder cattle coming across the border affects Texas markets more than others. "As more of these calves come in," Davis said, "it does affect us, but what affects us the most is the next year when these cattle go through the feedyard and get into our beef supply." If they bring in 1.6 million like they did in 1995, then they add that much to the beef supply for next year. Through July 20, this year, 438,960 head had been shipped. This was above the 371,253 head last year. That's about a 23.6 percent increase. Those numbers are up, but Davis predicts that will still be less than a million head for the year. "About 868,000 head is what I've projected for 1999," Davis said. Following the North American Free Trade Agreement in 1994, Canada increased the number of cattle they shipped to the U.S., but Mexico increased their shipments by much greater numbers. "That was forced, not because of NAFTA, but because of the drought in Mexico," Davis said. "We took a lot of their cattle in that year. They either had to kill them or let them starve to death or bring them into the United States. They were cheap." The people that were backgrounding those cattle and feeding them, probably made money off them. "When we bring those cattle in from Mexico, we do add value to those cattle," Davis said. "We do generate dollars within our own country." That's different than Canada. Of the 1.5 million head that came in from Canada in 1996, 95 percent were fed cattle, ready to be slaughtered. Over the past few years Canada has been shipping the U.S. less cattle, but IBP and Excel and ConAgra have increased their kill capacity in Canada. "Now, instead of shipping us slaughter cattle," Davis said, "they're shipping us beef. That's having even more impact on our economy. They're not generating dollars for our feedlots." Since the drought, Mexico hasn't had the cattle to import into the U.S., Davis said, but they remain a growing market for U.S. beef. The Mexican economy seems to be improving and their population is young and their numbers are growing. In addition to an increasing birth rate, the country is experiencing an inflow from Central America. It has the potential for being an excellent market for U.S. beef, Davis said. |
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