Expectations of higher calf prices and greater profitability have, for the most part, been fulfilled in 2000 and will continue. Declining herd numbers and increased demand have resulted in 500-pound calf prices averaging over $40 per hundredweight higher than they were during the bottom of the cattle price cycle in 1996.

According to Randy Blach, Director of Market Analysis for Cattle-Fax, a cattle marketing information service, the average cow-calf producer has earned only $3.04 per head per year for the past 20 years. That's not much considering the capital investment involved, and the reason why there are a lot fewer full-time beef producers today. Typically during the 10-year cattle cycle, cow-calf producers experience four to six years of losses, with those who survive reaping the benefits of four to six years of profits.
The first good year of profits in the current cycle was 1999. And finally in 2000, profits were much better than average with the average producer making about $80 per head according to Cattle-Fax data. Profits are expected to be very good through 2003 and 2004. If the industry is successful in the battle to continue to grow beef demand, Mr. Blach says that average cow-calf producers could remain profitable well past the middle of this decade.

While average producers made $80 per head profit, the top third of cow-calf producers earned $60 or more above the average. These producers saw profit between $100 and $200 per head last year instead of $80. Why did they excel? For starters they weaned more calves than average and their feed cost per cow is $20 to $25 per head below average. Total cash cost per cow is also lower.
Facing challenges
While the forecast for profitability looks pretty good until at least 2004, we face threats from economically devastating diseases such as bovine spongiform encephalopathy (BSE) and foot-and-mouth disease (FMD). So far, no confirmed cases of either have been found in the U.S. but even one case will have devastating affects on consumer confidence and U.S. beef prices. Implementing animal identification and recordkeeping programs as well as source verification will go a long way in containing disease outbreaks if they ever happen and fending off future beef safety challenges.
Riding the cycle
Economic indicators continue to show an up-swing in the cattle cycle. However, bidding up the price of production females with the expectation that calf prices will remain high indefinitely is short sighted and unrealistic. If expansion is in your plans, determine the lifetime profitability of the females you buy or keep. Read, our feature article,"Riding the Cycle" in this months' Drovers to learn more on determining how much you should spend on expansion.