RENO, Nev. -- The nation's cattle industry is facing unsettled times due to volatile grain markets, high input costs, global beef demand and the cattle cycle.

"It's a very different time in the industry than any of us have ever experienced with record-high input costs. And they continue to soar and we don't know where that end is relative to some of these things," said Randy Blach, executive vice president of Cattle-Fax marketing service. "We've got growing global market demand from all over the world that we haven't experienced any time in the past."

Blach spoke during the Cattle-Fax outlook seminar at the National Cattlemen's Beef Association's annual convention.

Volatility within the feed grain sector will last through 2008 due to domestic and global factors, said Mike Murphy, an analyst with Cattle-Fax.

Commodities such as corn, soybeans and wheat have continued to experience major price jumps.

"Over the last 18 months, we've shared with you that corn prices are going to move higher," Blach said. "This is a demand bull market in corn. It is not a supply bull market."

Blach projected that corn prices this year could hit $5 1/2 to $6 a bushel. By fall, prices should level out and average about $4 a bushel, he predicted.

"But high grain prices are going to be in play here for the next several years," he added.

Total acreage planted to corn is expected to be about 4 million to 5 million acres less in 2008.

The USDA predicts that ethanol production will use an estimated 3.2 billion bushels of corn this year. However, Murphy said that number is closer to 2.8 billion bushels this marketing year for corn.

"I think that's a sign that maybe production might not be coming up as quickly as we thought before," Murphy said.

The experts also predicted that the battle for planted acreage between corn and soybeans will be fierce in 2008, due to declining inventories in corn and soybeans and worldwide demand that will continue to drive prices higher.

"You're going to continue to have that war for acres between corn and beans over the course of the next few years," Murphy said.

The wild cards in the grain sector will likely be weather and less acreage planted into feed grains, Murphy said.

If fertilizer prices continue to increase, he said, there could be a shift from planting corn to soybeans.

In the export arena, the demand for corn exports has reached record levels, Murphy said.

America's weak dollar is one factor driving this. The country's largest trade partners have greater buying power with a weak U.S. dollar, he said.

"It's important to remember that a weak dollar is actually very bullish to agriculture commodities," Murphy said.

Globally, the flow of commodities and food are increasing. Demand is strong not only for commodities such as corn and soybeans, but also for items such as skim milk powder, palm oil and rice.

Commodity inflation is growing due to demand around the world, said Brett Stuart, an analyst with CattleFax.

He added that it's unsettling to see beef near the bottom of the global demand chart. One reason is that some major export markets have not opened up fully to imports of U.S. beef.

Again, a weaker dollar can be beneficial in export markets. A country can buy additional beef or the same amount of beef with less money, Stuart said.

"We're really being penalized being out of these markets with this weak dollar," he noted.

In January 2004, 92 percent of the U.S. beef export markets were closed when BSE was discovered in this country.

Currently, the U.S. has recovered about 70 percent of 2003 volumes. Exports continue to grow in nearly every key market, Stuart said.

This year, depending on access to South Korea and expanded access to Japan, there could be big increases in U.S. beef exports.

The U.S. produces nearly 27 billion pounds of beef a year. Total cow inventory for both beef and dairy is about 42 million head. Total cattle inventory for the U.S. is 97 million head. Both inventories show slight declines, Murphy said.

"The cattle cycle is on life support," Blach said. "I think from an inventory standpoint the cattle cycle is dead."

The U.S. has increased only about 1 percent in beef production the past 10 years. This is one indicator that no expansion is taking place in U.S. herds. However, carcass weights are heavier, which means cattle raisers are producing more beef with the same amount of inventory, said Kevin Good, an analyst with Cattle-Fax.

Also, with the high prices being paid for row crop commodities, the market is incentivizing producers to run fewer cattle and crop more acres.

"That's an area that will continue to be a challenge for the livestock industry in the next several years," Blach said.

High grain prices also will continue to impact calf prices by narrowing profit margins.

"From a cow-calf perspective, obviously, higher grain prices are going to continue to put pressure on calf prices," Murphy said.

The cow-calf sector of the industry has been profitable over the past few years. Prices paid for calves in 2007 averaged nearly $1.20 a pound.

Projected prices paid for a 550 pound calf will average $115 cwt this year.

This projected price decrease also can be attributed to continuing price increases for feed and fuel.

"That combination probably makes the cow-calf side of things, even though it's profitable, a lot more marginal than it was two or three years ago," Good said.

Since 2000, hay has increased 58 percent in value, corn 94 percent, nitrogen 130 percent and pasture value 121 percent, according to Cattle-Fax.

Producers could see hay prices increase as more acres are planted to more profitable row crops.

Murphy said hay prices reached $30 to $40 a ton in the past couple of years.

Price discrepancies for prices paid for calves will also vary across the nation due to factors such as freight and differentiation of calf quality. This quality difference has created spreads of $20 a head on calves that weigh the same and sell on the same day, said Good.

"We think that differentiation of product from the calf to the feeder to the fed -- all the way to the plate -- will continue to widen as we go forward," he added.

The feeder and packer sectors of the industry also are dealing with tight margins.

The cattle feeding segment is looking at slightly lower prices this year because of high input costs. Good projected that the average paid for feeder cattle will range from $94 to $116, with the average being $104 cwt.

He forecast that fed cattle will average $92 to $94 cwt this year.

"There really hasn't been any margins at all. The margins have been very difficult," said Blach.

All these increases in costs have to be absorbed and passed on from gate to plate.

"I know a lot of you don't want to hear this, but it's very difficult for us to have a strong industry if we don't have a strong packing segment," he added.

Blach stressed that the changing cattle industry environment creates numerous opportunities for the cow-calf producer, feedyards and packers to differentiate their product.

The bottom line: "Our focus has to be on high-quality fed beef. I think if we stay focused there with the growing incomes that we have all around the world, we may be pleasantly surprised," Blach said.

• E-mail Beverly Moseley at beverly.moseley@theeagle.com.

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