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Commercial Cattle Price Outlook

published: March 1st 2010
by: Kindra Gordon
source: Simbrah World

For many people, 2009 wasn’t a hard year to say good-bye to. As the door opens to 2010, most are hopeful that the economic ups and downs of the last 12 months will take on a more optimistic tone.
    While Wall Street seems to be trending that way, what can rural America – particularly the cattle markets – expect?
    Darrell Mark, an associate professor and Extension livestock marketing specialist at the University of Nebraska-Lincoln, offers his view, saying, “I look for fed cattle prices in 2010 to remain mostly in the $80s, similar to 2009. Seasonally, we should see upper $80s in the first and second quarter, with a drop to the lower $80s by the third quarter. Fourth quarter 2010 has a chance to move back towards $90.”
    That said, Mark acknowledges that the outlook for 2010 is difficult to peg right now. “It is difficult in many respects because market prices will be more demand driven than supply driven and that is hard to forecast,” he says.
    He further explains, “We really don’t have a supply problem – we have an historically tight beef cow inventory, calf crop supply, and heifer retention is down. Cattle supplies won’t be burdensome and cause lower prices. Demand will be more of a factor in determining whether we see higher or lower prices in 2010.”
    Specifically, Mark points out that roughly 90% of America’s beef product is consumed domestically, so it is important for domestic consumer demand to remain strong. However, he says, “With the economic recession still looming on people’s minds, consumer spending for many products, including higher-end protein will be hard to improve in 2010.”

    Mark adds, “Restaurant demand, which has been key to “middle meat” sales –specifically steaks – has been hurt most acutely by the recession, and I think people will be quite cautious about discretionary spending in the next year or so. They may continue to dine out less frequently, or at fewer ‘up-scale’ restaurants.”
    Thus, Mark concludes, “The bottom line, I think, is that we need to see an improvement in the economy and an increase in consumer spending before we see demand really pick up and support much higher fed cattle prices.”

Global Demand, Too
    Looking internationally, Mark says a strengthening beef export market would also contribute to better U.S. cattle prices. And he adds, “The relatively cheap U.S. dollar, if that continues into 2010, will help support that export trade.”
    Cattle-Fax Executive Vice President Randy Blach is also a believer in the importance of building U.S. beef exports. Blach addressed the Texas Cattle Feeders Association annual convention this fall and emphasized the continued need for building U.S. beef demand globally.
    Blach said, “I don’t want to sound like a broken record. I’ve said this for the last several years, but I still think this [restoring beef exports] is an area where we’re really missing the boat as an industry.”
    He added that beef producers need to work harder to get “the right people’s attention and get some of these markets opened up.”
Blach said, “It would have a tremendous impact on what we’re able to merchandise cattle for.”

The Corn Conundrum
    The slow pace of harvest for the 2009 corn crop  created risk and uncertainty for the livestock sector going into 2010.
    Not only did wet fall weather prevent corn from drying down, but mold, mycotoxins and other disease problems were present on ears – which becomes an issue for livestock consumption
    This leaves livestock feeders with a lot of uncertainty, says Darrell Mark, associate professor and Extension livestock marketing specialist at the University of Nebraska-Lincoln. Namely, corn prices are remaining higher than expected, says Mark.
    But, he adds, “This year’s corn harvest is really a tale of two crops. One crop is getting dried down and will store well for a long period and be exportable. The other crop is going to be stored in less than ideal conditions: high moisture, large ground piles, and possibly with some quality issues. It will be hard for cattle feeders to compete for the former, but they are in a competitive position for the latter.”
    Specifically, Mark offers the following points to consider:
    The high moisture levels in corn has given many cattle feeders an opportunity to source more high-moisture corn to ensile than in recent years. Hog and poultry growers and ethanol producers are not able to handle large volumes of high moisture corn like Northern Plains cattle feeders can, Mark says.
    Likewise, the possible presence of mold or mycotoxins in this year’s corn crop, while never a good thing, could put cattle feeders ahead of other livestock feeders for some infected corn because safe feeding tolerance levels are higher for cattle than other species, according to Mark. But he cautions that producers should consult their nutritionist and veterinarian before feeding grain with any mycotoxins or mold.
    Another aspect of this year’s crop that may help the cattle feeder is a larger than normal movement of cash corn next March. Mark explains, “A lot of corn went into on-farm storage without being fully dried down to 15% moisture. Aeration systems will use natural air drying to preserve corn during the cold winter months, but warming temperatures next spring will likely lead to mold problems and corn going out of conditions in grain bins, thus spurring farmer selling of corn.”
    Lastly, Mark notes that these dynamics in the corn market have interesting implications for the distillers grains market as well. He says, “The delayed corn harvest created a lack of supply for livestock producers, and with higher corn prices, pork and poultry producers increased their dried distillers grains plus solubles (DDGS) dietary inclusion levels because they are less able to utilize high moisture corn or wet distillers grains. That, along with higher export demand, has resulted in DDGS prices increasing from 70% of the price of corn (on a dry matter basis) to over 90% of the corn price (dry matter basis).”
    Mark points out that wet distillers grains plus solubles (WDGS) and modified wet distillers grains plus solubles (MWDGS) are more likely to be fed locally to cattle, and thus have not seen as large of a price increase relative to corn. (WDGS has increased to 80% of corn price and MWDGS is about 75% of corn price, both on a dry matter basis.)
    However, demand for WDGS and MWDGS could be pressured throughout the winter by cattle feeders who stored extra high moisture corn this fall or if more wet grain begins to move next spring, Mark says.
    And, all livestock feeders will have to take care that any possible molds or mycotoxins in distillers grains don’t exceed allowable tolerance levels. Mark concludes, “This could be an important consideration because these contaminants would be concentrated three-fold in distillers grains relative to corn.”
 —Compiled by Kindra Gordon
    He explained, “We still aren’t back to the same levels of beef exports that we were pre-BSE. We were exporting 2.5 billion lbs. in 2003. We’re going to be lucky to be at 1.8 or 1.9 billion lbs. this year.”
    According to Blach, if U.S. beef were operating under the same trade protocols with Japan as it is with South Korea, “it would be worth another $60 to $70 per head across our fed cattle market.” Getting into China also needs to be a priority, he says.
    Overall, the decline in beef demand is the biggest challenge facing the industry, according to Blach. “We’ve averaged $83 to $84 on fed cattle this year. If we had the same demand we had a year ago, our market would be averaging $94 to $95 per hundredweight.”
    On a brighter note, Blach said that because supply levels are well in check, a significant increase in fed cattle prices could come as the economy recovers, possibly toward the end of 2010.