Cattle/Beef: The Prospective Plantings report released by the National Agricultural Statistics Service on March 30, 2007 indicated higher corn acreage intentions than most analysts expected. As a result, cash and futures prices for corn declined, which along with recent mid-continental rains boosted cash and futures prices for feeder cattle. Fed cattle and cow prices rebounded late in response to increasing interest in Easter beef sales and the upcoming grilling season.

Dairy: Milk and dairy product prices are expected to increase through the balance of 2007. Small production increases in 2007 will constrain supply in light of continued growth in demand.

Cattle/Beef

Uncertainty in Feed Grain Markets Affects Cattle Prices

Rains across much of the mid-United States in late March and early April boosted pasture and range prospects for 2007. Corn planting intentions were reported to be 90.5 million acres in 2007, the highest since 1944. This 15-percent year-over-year increase comes, in part, from 11-percent lower soybean planting intentions and 20- percent lower cotton planting intentions. Wheat planting intentions were up 5 percent, and intended harvested hay acres were up 4 percent. Given these planting intentions, grain and cattle prices may display some volatility during the spring and summer in concert with weather conditions.

Despite improving pasture and range prospects, cow slaughter continued at a high rate through March 2007, given the size of the cow inventory, due to inadequate pastures before spring forage growth, harvested forage stocks that have been severely stretched by the late winter snows, and the fourth Cooperatives Working Together (CWT) dairy herd buyout. As grass begins to grow in pastures this spring, beef cow slaughter should decline significantly, as it has in the last couple of weeks, and could remain low through summer with normal or near-normal weather. Offsetting the expected decline in beef cow slaughter, dairy cow slaughter could continue relatively heavy, given low milk prices and the CWT buyout.

Calf slaughter also continues at a rate well ahead of 2006. Cumulative year-to-date federally inspected (FI) calf slaughter for the week ending March 31, 2007, was 27 percent above the same period of 2006. Despite much higher FI calf slaughter, cumulative veal production for 2007 was up only 12 percent over the same period in 2006, reflecting the relatively light calf slaughter weights as a result of deteriorating pasture conditions through the winter and lack of demand for feeder cattle for grazing or, combined with high corn prices, for feedlot placements from late fall 2006 through winter. Similar to cow slaughter, calf slaughter could decline as pastures begin to grow this spring, which, combined with relatively low supplies of feeder cattle and higher feed costs, should result in improved pasture demand for stocker cattle.

Fed cattle prices during March 2007 averaged $96.39 per cwt for Nebraska 65-80- percent Choice steers, 12 percent above March 2006 prices. Fed steer prices also broke the $100/cwt mark during the week of April 7, 2007, levels not experienced since late 2003, just before the discovery of BSE in the United States. Despite 11.6 million cattle on feed on March 1, 2007, 4 percent below the March 1, 2006 record (since the series began in 1996) of 12.0 million head, cattle on feed were still 4 percent above the March 1, 2005 inventory number. The March 1, 2007 cattle-onfeed inventory has been exceeded only twice since 1996—in 2001 and in 2006. Faced with such inventories and with packers’ desire to increase their margins, it is hard to see how current fed cattle prices can be maintained very far into the future unless retail prices continue to increase.

Cumulative year-to-date weekly FI cattle slaughter for the week ending March 31, 2007 was 4 percent ahead of the same period in 2006. Beef production was just under 3 percent higher for the same period, reflecting average dressed weights of cattle slaughtered under Federal inspection through March of an estimated 770 pounds per head.This was about 10 pounds or 1.3 percent below 2006 weights, but 1 percent above 2005 weights. March steer weights will likely be about 11 pounds, or just over 1 percent, below March 2006 weights, but 1.6 percent above March 2005 weights. Weights in 2006 were well above longer term trends, and current weights are more in line with long-term trends.

Cow prices rose during the first week in April, possibly signaling the end ofheavy fall and winter beef cow slaughter levels and, given the relatively tight supplies of processing beef abroad and a declining dollar, possibly portending strength in cow prices through at least early summer. Cutout values for Choice beef carcasses have declined from their mid-month highs, but the March 2007 monthly average, at $159.23 per cwt, remained 9 percent above the March 2006 price of $145.68 and on a par with record price levels in late 2003. Cutout values for Select beef, averaging $149.80 during March 2007, have been exceeded only by the $149 average recorded in October 2003. Packers are benefiting from the near-record byproduct allowances, enjoying broad-based support with prices for hides, blood products, meat and bone meal, and several offal categories well above prices for the same period in 2006. Monthly average retail Choice beef prices for February were $4.05 per pound, virtually unchanged from February 2006, but they have been increasing since December 2006

Dairy

Milk Prices Continue to Rise, Slower Production Expansion Tightens Supply

A slight year-over-year increase in output per cow is expected to increase milk production in 2007 by 1.1 percent over 2006, to 183.8 billion pounds. Because of higher feed costs and weaker milk prices in 2006, the robust increases in production of the last 2 years have slowed to a crawl. Although corn prices have slipped in recent weeks, they are still well above 3 dollars a bushel. High grain prices, combined with high alfalfa prices and shortages, have countered higher prices for milk and will likely keep the milk-feed price ratio near 2.5 for the current year, near the 2006 level. The National Milk Producers Federation is predicting that about 54,000 cows will leave the national dairy herd this spring as a result of the Cooperatives Working Together buyout. A modest decline in cow numbers is expected to continue for the balance of 2007.

The tightening milk supplies are encountering continued demand growth. The commercial disappearance of all milk and dairy products was up 4.4 percent for the November through January period compared with a year earlier. Meanwhile, milk production rose 2.4 percent during the same period. Prices for cheese and butter have remained strong, and February stock levels for American cheese and butter were unchanged and 10 percent higher respectively, according to the March Cold Storage report. Cheese and butter prices are both expected to climb over the course of 2007. Cheese prices are projected to average $1.350 to $1.400 per pound. The average butter price is expected to range between $1.255 and $1.335 per pound for the year. The rising prices are primarily a result of the tightening supply situation. Continued demand for dry products, both domestically and globally, is expected to keep Nonfat Dry Milk (NDM) prices in the $1.190 to $1.230 per pound range for 2007. Continued expansion in both domestic and foreign food demand for whey has boosted its price. Whey prices continue to rise, and are expected to average between 65.0 and 68.0 cents per pound for 2007.

The continued strong demand for dairy products, combined with a tightening supply of milk through the balance of 2007, points to continued higher prices for all milk classes. The Class IV milk price is expected to climb throughout 2007, averaging $13.65 to $14.25 per cwt for the year. The Class III price is projected to rise to an average $14.65 to $15.15 per cwt for the year. The reported all-milk price is expected to be sharply higher in 2007 and will likely average $15.55 to $16.05 per cwt for the year. The forecast rise in the all-milk price could signal production expansion by late this year, assuming alfalfa prices moderate and corn prices do not rise appreciably higher.

Further Information

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

April 2007