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Out to Pasture

March 26, 2010
By: Anna McBrayer, Editor

Steve Cornett
It feels like this cattle market is going to heal, doesn't it? But then, sometimes it feels like it's going to rain and, more often than not in these parts, it doesn't. I have the bank account to prove I'm not always right, but I think there's a lot more upside than downside to come in this market.

It's not just my gut feeling after listening to the CattleFax session at the National Cattlemen's Beef Association convention in January.

I think that beef markets could get better than what CattleFax is willing to say they will.

The problem is demand. We keep killing cows and selling heifers, but despite the smaller herds, there just isn't the price snap that you would expect.

U.S. consumers are spending less on everything and trying to save for a rainy (rainier, might be more accurate, given the current unemployment rate and fiscal situation) day. Instead of steak, they buy hamburger. Instead of hamburger, they buy pork. Instead of pork, they buy chicken. Instead of chicken,

they buy…hmmm. I guess there is nothing lower than chicken, is there?

Meat prices. To illustrate this, look at the change in the high-end steak houses, which are down a fourth to a third in business and offering more economical choices to boot. Meanwhile hamburger joints are booming, albeit with a lot of price-based promotion.

Look at the incredibly narrow Choice to Select spread of 2009 or the relationship of the prices of tenderloin and 90% trim beef. In 2009, tenderloin was priced 27% under 2007 levels, while burger meats were 9% higher.

The way CattleFax sees it, the national economy is the big holdup. They say demand—as measured by the tonnage-per-price equations they use—has decreased every year since 2004. By their reckoning, between 2004 and 2009, the decrease has more than erased all the hard-earned increase since 1998.

That drop in demand has, so far, offset the decreases in supply provided by the smaller cowherds.

It's not just here. Canada's cowherd is 6% smaller than last year. Drought has narrowed Australia's herd. In Argentina, where the cowherd is the smallest it has been in nearly a half-century, consumers boycotted beef in February because of a 25% price increase.

All that leads CattleFax to predict that cattle prices this year will be moderately higher than 2009. Specifically, they predict fed steers to average $86 to $88 cwt., compared to $83.50 cwt. in 2009. They see 750-lb. feeder steers at $99 to $101 cwt., compared to $95.50 cwt. last year, and 550-lb. steers to run $111 to $113 cwt., versus the $107 cwt. of last year.

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FEATURED IN: Beef Today - Early Spring 2010

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