1. 1 Cattle Outlook & Risk Management Using BeefBasis.com James Mintert, Ph.D. Professor & Extension State Leader Department of Agricultural Economics Kansas State University Garden City, KS October 3, 2007 www.agmanager.info/livestock/marketingjmintert@ksu.edu

2. 2 A Picture of A Healthy Industry

3. A Shrinking Industry Responding to a Lack of Profitability Current inventory is about 26% smaller than in 1975

4. But Weaker Demand Was Key Beef Demand 1980-1998

5. Downturn Got Underway in mid-2005 Rebound In Spring 2007?

6. 6 Beef Demand Shifters Whats been taking place recently? Demand index does not indicate why shifts occur Possible reasons for recent downturnPossible reasons for recent downturn –Low carb diet effect has worn off –Consumers disposable income growth slowing Domestic demand could remain soft Domestic demand could remain soft How do we turn this around?How do we turn this around?

7. 7 International Trade Outlook

8. U.S. Was A Net Exporter From 1981-2003

9. Top 5 Importers Accounted for 91% of U.S. Exports U.S. needs to recapture these markets to regain $s and volume

10. 10 Gains In Japan Have Been Small Jan-July 07 Was Still 84% Below Jan-July 03

11. 11 Where Are We Headed? Trade U.S. strength is in high quality beef productsU.S. strength is in high quality beef products –Will higher corn prices erode this advantage? Regaining market share will take several yearsRegaining market share will take several years –Market access is key –Korea & Japan Consumer incomes in importing countries are key to long-run growth in beef exportsConsumer incomes in importing countries are key to long-run growth in beef exports Other countries may have comparative advantage in cow-calf productionOther countries may have comparative advantage in cow-calf production

12. 12 Supply Side in the U.S.

13. Strong Profitability Encouraging Expansion, But… Drought Conditions Discouraged Expansion in 06

14. And Expansion Still Appears To Be On Hold… January-mid-Sept. Beef Cow Slaughter Up 7% vs. 2006

15. 15 Data Source: USDA/NASS, LMIC Plains Pastures Are Much Better Than In 06

16. 16 Source: USDA/NASS & LMIC But U.S. Conditions Still Worse Than Average

17. Modest Slaughter Decline Expected in 08 Excess slaughter capacity means spread between live and wholesale prices will remain tight

18. 18 Narrow Processor Margins Are Supporting Slaughter Cattle Prices

19. On Feed Inventory Below A Year Ago

20. Placements Down Sharply This Summer

21. 21 Changing Composition of Placements On Feed

22. 22 Weathers Impact On Performance Held Weights Down Until Recently

23. Long Term Trend Is Still Toward Higher Weights Weights Expected To Be Above Year Earlier This Fall & Winter

24. Little Change in Beef Production Expected in 08

25. Prices Have Rallied…

26. Record High Prices in 07 & Again in 08

27. 27 Futures Forecast Prices Over $100 in Late Winter & Early Spring

28. Feeders Climbing Back Near $120

29. Strong Fed Cattle Prices Supporting Feeder Values Feed Grain Prices Will Be Key

30. 30 But Feeder Futures Forecast Weaker Prices This Winter

31. Calf Prices Rebounded Sharply This Summer

32. Feed Costs Will Be A Big Factor in Calf Price Outlook Cycle Peak was in 05

33. 33 Ethanol, Corn Prices, & Cattle

34. 34 Implications for Cattle Feeding Industry Where Will Future Expansion Take Place?

35. 35 A Growing Industry

36. 36 Southern Plains Feeders Losing Market Share?

37. 37 Cattle Feeding Shifting North?

38. 38 174,000 head

39. 39 165,000 head

40. 40 195,000 head Cattle Feeding Shifting North?

41. 41 Key Points Strong slaughter cattle prices ahead in 07 & 08Strong slaughter cattle prices ahead in 07 & 08 –Herd expansion in U.S. cut short –Slow export market recovery –Domestic demand could be weak High feed grain prices are the new realityHigh feed grain prices are the new reality –High corn price volatility is also the new reality Feeder & calf prices supported by high fed cattle pricesFeeder & calf prices supported by high fed cattle prices – would be even higher with lower feed costs Upper Midwest DGS concentration will encourage feeding expansion in the NorthUpper Midwest DGS concentration will encourage feeding expansion in the North

42. 42

43. 43 Improved Feeder Cattle Basis Forecasts

44. 44 Forecasts From Two Different Models Provided 750 Lb. Steer Basis Forecasts, Amarillo, TX Forecasts For: 10.31.2007

45. 45 Sensitivity Analysis Provided Impact of Changes in Corn & Live Cattle Prices on Basis 750 Lb. Steer Basis Forecast for 10.31.2007, Amarillo, TX

46. 46 Need A Forecast For A Different Weight? Go Back To The Input Screen & Change It

47. 47 Other Tools Available on BeefBasis.com Examine & Download Historical Market Data

48. 48 Make Comparisons Between 2 or More Markets Example: OKC vs. Pratt, KS

49. 49 Compare Average Price By Month, Year-By-Year OKC Medium & Large, #1 700-750 Lb. Steers

50. 50Visitwww.agmanager.infowww.beefbasis.com Thank You!