ALABAMA A&M and AUBURN UNIVERSITIES

Declining Inventories Benefit Producers in the Long Run:

What goes up must come down.

Nowhere is this truer than in the cattle industry, and with chronically high cattle inventories finally coming down, experts say livestock producers finally can breathe a long-awaited sigh of relief.

Declining cattle numbers will contribute to lower tonnage of beef on the market in the long run, and this, in turn, likely will begin driving prices up from the anemic levels producers have endured for the past few years, says Dr. Walter Prevatt, an Alabama Cooperative Extension System economist.

Improved export markets -- especially in Asia where currency rates have improved – and slightly increased domestic consumer demands for beef also contributed to a price improvement, he says.

As Prevatt sees it, inventory reductions are a normal market cycle expected roughly every 10 years.

“This is the typical cattle cycle we see,” he says.  “They generally last between 10 and 13 years.”

“In this case, we experienced the downward transition in 1994, ’95 and ’96 but underwent a slight improvement in 1997.  Last year, however, we suffered a setback due to increased beef production.”

Also contributing to 1998 lower beef prices were higher levels of  poultry and pork production and a weak export market, Prevatt says.

While demand for U.S. beef has improved in Asian markets, exports to Europe appear to be a lost cause for now, Prevatt says.

Europeans continue to oppose U.S. beef imports because of the presence of growth hormones in the products.

While growth hormones have been tested and proven safe on numerous occasions, Prevatt says the specter of hormones is used as a subtle form of European protectionism against cheaper American imports.

U.S. trade authorities have petitioned the World Trade Organization for repeal of this ban, but European governments prefer paying WTO-imposed fines rather than opening their markets to U.S. imports.

As far as European exports are concerned, Prevatt says relief is unlikely for the foreseeable future.

On the brighter side, Prevatt expects the downward trend in inventories likely will continue.

“Since it takes more than two years for a weaned heifer to be developed, bred and then to calve and wean, it will be at least two years before the inventory numbers reach their cycle low,” he says.

With so many heifers going to the feedlot, he says, few are being retained for brood cows and breeding herds.   As a result, he expects it will take at least two years before the inventory rises again.

While he believes this will contribute to higher prices in the near future, Prevatt says this will be heavily influenced by inventories of the two “white meats” (chicken and pork) and continued strength in the beef export market.

Broiler production numbers, in fact, have increased steadily during the past 20 years.  The pork industry also is poised for rapid expansion, providing markets warrant such expansion, Prevatt says.

(Source: Dr. J. Walter Prevatt, Extension agricultural economist.)