home → articles → Marketing | Email to a Friend

Stronger cattle prices ahead predicted for the beef industry

published: April 30th 2010
by: Martha Hollida Garrett

If you’re wishing on a star for higher cattle prices this year, then the stars appear to be lining up in your favor.  A combination of great moisture, smaller cow herd numbers, fewer cattle on feed, increased demand, and a rebounding economy are all indicating stronger prices ahead for all segments of the beef industry.
    “A number of factors have come into play and predictions for the summer quarter are stronger than last year. Forecasts are calling for $88-90/cwt fed cattle prices, even higher if demand continues to strengthen,” says David Anderson, Texas AgriLife, professor and extension economist. He adds that while prices are up, beef production is forecast to be down 1.1% and commercial cattle harvest down by almost 2%, which is contributing to the increase in prices.
    Demand for red meat normally increases as the summer grilling season approaches. But in 2008 livestock producers were hit with record corn prices. Last year, demand collapsed along with the economies in the U.S. and worldwide.
    At press time, fed cattle prices had hit close to $1 a pound in the last week giving cattlemen renewed hope following 2009 prices and drought across many areas.
   According to the USDA report in April, feeder cattle, those animals put in feedlots for their last weight gain before slaughter, have increased in price by 18 percent since January.        
    The USDA upped its forecast for cash prices for cattle from $87 per hundredweight to as high as $95 per hundredweight through summer.   
    The January 1, 2010 Cattle Report by USDA revealed an inventory of all cattle and calves of 93.7 million head, 1 percent lower than 2009.  This decline reflects an overall lack of profitability due to higher operating costs and lower prices in the beef and dairy industries in recent years.
    Beef cow numbers were the lowest in 46 years at 31.4 million.  These lower cow numbers are also reflected in the calf crop, which was reported at 35.8 million.  This is the lowest calf crop since 1950. Additionally, feeder cattle and calves outside of feedlots came in at 27.5 million head, down slightly from a year-ago. However, carcass beef production is expected to increase about 5-8 pounds per carcass, which adds about 200-250 million pounds of beef production.
    The cattle herd size has been decreasing since 2007. Drought, rising feed costs and poor margins for feeders and cow/calf producers all contributed to the decline in cattle numbers. The total inventory of cattle herds edged down from 96.6 million head in 2007 to 94.5 million head as of January 1, 2009. Input costs have moderated over the past year, but fed cattle along with feeder cattle and calf prices have also declined. The cattle herd is expected to continue to decline into early 2011 with the inventory falling to 93 million head. From that level, the total inventory rebuilds slowly to 94.15 million head by January 1, 2015.
    Going forward, these reduced supplies of cattle should be viewed as positives for beef producers.  As the economy improves and demand increases, the tight supplies should translate into higher prices for finished and feeder cattle as well as calves.
    “Growing demand is triggering a lot of the increase in prices for cattlemen. People are spending more and the fear concerning the economy is decreasing. In the wholesale market we are seeing an increase for the higher cuts like steaks and other middle meats, which points to an overall strengthening of the economy,” explains Anderson.
    He says that further contraction of the cowherd is ahead, considering that cow slaughter (culling) is running above the norm and fewer heifers were retained.
    “With a drought, comes a lot of rethinking about stocking rates. Producers analyze their numbers and in general do not restock at the same rate,” he describes.
    Anderson says that forecasts are looking very favorable for cow/calf producers into the fourth quarter also, as predictions are calling for 500-600 weight calves to be in the $1.03-$1.14 per pound average, which would be about $9/cwt higher than last year.
    Many reports are indicating that profitability is ahead for cattlemen, but there remains guarded optimism, as grain prices will be a key to making money. The big risk ahead is corn prices and for cattlemen to make money, an ample crop is needed to meet livestock and ethanol demands.