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High corn prices combine with cattle cycle to push calf and feBy Doug Rich The biggest factor for the cattle market in 2007 and beyond is the price of corn. Sharply higher corn prices are not a short-term situation, according to Randy Blach, executive vice president of Cattle-Fax, analysts made their projections at the annual Cattle-Fax Outlook seminar during the Cattle Industry Convention. "We are likely to see the cattle cycle stretch out the expansion cycle," Blach said. "The higher corn prices are here to stay." Ethanol production has created an unprecedented demand for corn and it is having an effect on the cattle industry. Mike Murphy, Cattle-Fax analyst, said there has been a 50 percent increase in demand for corn over the last 15 years. In 2007 ethanol production will account for approximately one-third of the total corn demand. Ethanol production is expected to expand. According to the Renewable Fuels Association there are 111 plants operating at this time, eight of those are planning to expand, and 75 new plants are being built. This year these plants will use 4.1 billion bushels of corn. "We need a 12 billion bushel crop or we will have problems," Murphy said. The 2006/2007 corn crop is estimated to be the third largest in history at 10.535 billion bushels. However corn usage is projected to be 11.760 billion bushels in 2006/2007. Murphy said stocks to use is currently projected at 12 percent, a level that has not been seen since the 1973-1974 marketing year. The U.S. produces approximately 39 percent of the world's corn stocks. China is in second place at 21 percent. Exports from China are declining because it has significant domestic demand. corn price will range from $3.50 to $4.00 per bushel in 2007. The corn basis will be stronger in corn deficit areas. "We are in a new higher trading range," Murphy said. The higher trading range for corn will put a lot of pressure on calf and feeder prices in the next year. Calf prices could be $15 to $20 lower in 2007. Some producers will remain profitable for the next two years but the margins will be thin for average producers. The trends for the next year are higher grain prices, slightly lower fed cattle prices, and negative cattle feeding margins. Fed cattle prices will average around $85 in the next year. Feeder cattle will average around $97 and 550 pound steer calves will be around $110. In the fed steer market Cattle-Fax expects the market to trend gradually lower on an annual basis through the end of this decade. This is all happening while the total inventory of cattle in this country is gradually expanding. The total inventory as of Jan. 1, 2007 was estimated to be 97.6 million, up .5 percent compared to the same time period one year ago. Total cattle numbers have risen 21.7 million head during the last three years. Although carcass weights may be off slightly this year due to higher cost of gains and fewer days on feed but the long-term trend is still for carcass weights to go up over time. In 2006 the average carcass weights were up 12 pounds to 774 pounds. A record for carcass weights. "We have just finished one of the best runs of profitability that we have ever had in this industry and we should remember that," Blach said. "We are on the downward slope of the cycle but there are still opportunities."
0 None None Date: 2/23/07
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