Copyright 1991-2011 Sterling Marketing, Inc

The Economic Environment of the U.S. Beef Industry

A Look at Today’s Cattle Cycle

Presented toUSDA Outlook Forum

February 25, 2011

John S. Nalivka

Copyright 1991-2011 Sterling Marketing, Inc.


Where are we in the cattle cycle?

Define the cattle cycle?

The approximately 10-year period in which the number of U.S. beef cattle is alternatively expanded and reduced over several consecutive years in response to perceived changes in profitability by producers.

1996 – 2003 Liquidation = 8 Years2004 – 2006 Expansion = 3 Years2007- 2010 Liquidation = 4 Years

2011 - ?


18671885

19031921

19391957

19751993

2011

0

15,000

30,000

45,000

60,000

75,000

90,000

105,000

120,000

135,000

The U.S. Cattle CycleThousand head


19501954

19581962

19661970

19741978

19821986

19901994

19982002

20062010

2014*

50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

140,000

U.S. Cattle InventoryThousand head


U.S. Cattle Inventory, January 1, 2011

Mountain

12,320,000

13.0%

South Central

27,220,000

28.8%

North Central

35,850,000

37.9%

South Atlantic

5,938,000

6.3%

Pacific *

7,725,000

8.2%

North Atlantic

3,530,000

3.7%

* Includes Hawaii & Alaska


The number of cattle relative to the number of people has been declining.Cattle per 100 people

19601965

19701975

19801985

19901995

20002005

20102015*

10

15

20

25

30

35

40

45

50

55

60

65

70


The quantity of beef produced per cowhas increased and will limit herd expansion Pounds per cow

19601965

19701975

19801985

19901995

20002005

20102015*

300

350

400

450

500

550

600

650

700


18671885

19031921

19391957

19751993

2011

0

15,000

30,000

45,000

60,000

75,000

90,000

105,000

120,000

135,000

0

5,000

10,000

15,000

20,000

25,000

30,000Cattle Inventory (Y1)

Beef Production (Y2)

The U.S. Cattle Cycle & Beef ProductionThousand head Million pounds


19791983

19871991

19951999

20032007

20112015*

85,000

90,000

95,000

100,000

105,000

110,000

115,000

120,000

20,000

21,000

22,000

23,000

24,000

25,000

26,000

27,000



U.S. Beef Production EfficiencyThousand head Million pounds


The Lowest Cattle Inventory Since 1952, but Producing 3X as Much Beef! Thousand head Million pounds

1952 1975 2010

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

0

5,000

10,000

15,000

20,000

25,000




Increasingly Important to Align

Supply and Demand


Cattle per 100 People Versus Pounds of Beef per CowCattle per 100 People Pounds of Beef Production per Cow

19601965

19701975

19801985

19901995

20002005

20102015*

10

20

30

40

50

60

70

200

250

300

350

400

450

500

550

600

650

700


The U.S. Cattle CycleThe Traditional Drivers

Forage Supply

Prices

Profitability


The U.S. Cattle CycleOther Factors to be Considered

DemographicsAge of Producers

Willingness & Ability to Assume Risk

More Risk Adverse

Access to CapitalTighter lending



Generate Cash

Uncertainty About Increasing Costs of Production

Feed & Energy


92 /9394/95

96/9798/99

2000/20012002/2003

2004/20052006/2007

2008/20092010/2011*

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

0

5%

10%

15%

20%

25%

30%

35%

40%Corn Crop (Y1)

Percent Used for Ethanol (Y2)

U.S. Corn Crop & Pct Used for EthanolMillion Bushels



Value-Based Marketing


Value-Based Production & MarketingFocusing on the Fundamentals

On Average, Break Even

High

Low

Cos

t of P

rodu

ctio

n

Mar

ket V

alue

of P

rodu

ctio

nHigh

Low

Opportunity

RiskOpportunity

Risk


Adding Value

requires

Added Investment


19781981

19841987

19901993

19961999

20022005

20082011*

-150

-125

-100

-75

-50

-25

0

25

50

75

100

125

150

175

200

Returns to Cow-Calf ProducersDollars per head


19982000

20022004

20062008

2010

-10%

-8%

-6%

-4%

-2%

-0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%Change in Costs of Production

Change in Calf Prices

Calf Prices Versus Costs of ProductionYear to Year Pct Change


19851987

19891991

19931995

19971999

20012003

20052007

20092011*

0

10

20

30

40

50

60

70

80

Slaughter Cow PriceDollars per cwt


19851987

19891991

19931995

19971999

20012003

20052007

20092011*

0

10

20

30

40

50

60

70

80

2,500

3,500

4,500

5,500

6,500

7,500Slaughter Cow Price (Y1)

Cow Slaughter (Y2)

Slaughter Cow Price & Cow SlaughterDollars per cwt Thousand head


19851987

19891991

19931995

19971999

20012003

20052007

2009

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

Percent of Beef Cows SlaughteredPercent



19851990

19952000

20052010

4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

U.S. Cow Slaughter Thousand head

2010 +5%2011 -7%


Beef Cow Slaughter Thousand head

Week Ending1/9/10

2/13/103/20/10

4/24/105/29/10

7/3/108/7/10

9/11/1010/16/10

11/20/1012/25/10

30

40

50

60

70

80

90

2009 2010

2011 2005-2009

For 2010 +10% Over 2009

Highest Since 1996


Dairy Cow Slaughter Thousand head

Week Ending1/9/10

2/13/103/20/10

4/24/105/29/10

7/3/108/7/10

9/11/1010/16/10

11/20/1012/25/10

30

40

50

60

70

802009 2010

2011 2005 - 2009

For 2010 0% From 2009


19501954

19581962

19661970

19741978

19821986

19901994

19982002

20062010

2014*

30,000

35,000

40,000

45,000

50,000

55,000

60,000

The U.S. cow herd is the smallest since 1951. Thousand head

Jan 1, 2013*39.585 mil.

Jan 1, 201140.014 mil.

Jan 1, 2016*40.35 mil.


19501954

19581962

19661970

19741978

19821986

19901994

19982002

20062010

2014*

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

The U.S. beef cow herd is the smallest since 1963. Thousand head

Jan 1, 2013*30.5 mil.

Jan 1, 201130.865 mil.

Jan 1, 2016*31.3 mil.


increased costs throughout the entire beef supply chain,

increased consumer input regarding both the final product and inputs,

increased competition in both domestic and global markets,

increasingly greater change in how business must be

done,

increased regulatory pressure, and ultimately,

increased CONSOLIDATION


Cost AlignmentDemand

Process VerificationSource

Animal WelfareEnvironment

Global MarketsPolitics

Best Practices

Documents

Copyright 1991-2011 Sterling Marketing, Inc