Expectations of tight beef cattle supplies and strong demand move prices higher this fall—a trend that could continue for the foreseeable future, says Chris Hurt, a Purdue University ag economist.
Finished cattle prices hit summer lows in early August at slightly below $120 per hundredweight (cwt.) but have climbed back toward $130 in anticipation of small beef supplies.
The primary driver for improved profitability is lower grain prices, specifically lower corn prices, says Greg Henderson, Beef Today editor. "It’s no coincidence that as corn prices declined to three-year lows this fall, cattle prices experienced an unprecedented rally," he says. "Stocker and feeder cattle posted 25% to 30% price gains in May, boosting the feeder cattle index price for 750-lb. steers to more than $165 per cwt.
According to Hurt, per capita beef supplies will be down by about 5% for the rest of this year and into next.
High cattle prices combined with low feed prices likely means the small number of available calves could be placed on feedlots at lighter weights than a year ago when feed prices were high.
Additionally, lower-priced feed and the expectation for increasing finished cattle prices during the next four to five months should encourage feedlot managers to feed to heavier weights, Hurt says.
Low cattle numbers mean feedlots and packing facilities have a lot of unused capacity. "The combination of excess capacity and high fixed costs means that both will tend to bid strongly for the limited cattle numbers," Hurt says. "Ultimately, this strong bidding gets back to the brood cow producer in the form of record-high calf and feeder cattle prices."
Strong cattle prices and aggressive bidding by feedlots and packers are likely to lead to a year or more of downsizing.
Some cattle producers in areas with healthy pastures could start retaining heifers as early as this fall. But in dry regions, which represent about 45% of the brood-cow herd, expansion won’t begin until weather becomes more favorable and pastures recover.
"If beef cow numbers begin to turn upward in 2014, downsizing of cattle feeding capacity might end in 2015 and the packing industry by 2016," Hurt says.
"The years beyond 2016 should provide some expansion for the industry, but still a slow upward growth."