By Donald Stotts, Oklahoma State University
A number of producers seem to be feeling a bit of disbelief when it comes to current cattle markets, worrying about a vague sense that there is another shoe to fall.
"Such feelings are understandable given everything the cattle industry has been through in the past several years, combined with the amount of volatility in most input and output markets," said Derrell Peel, Oklahoma State University Cooperative Extension livestock marketing specialist.
Current high prices
Feeder and fed cattle prices are at or near all time highs and are poised to keep moving higher. Both feeder and live cattle futures suggest that higher prices are yet to come.
"It is easy to remember corn and wheat markets in 2008 which soared to astronomical heights for a brief period of time," Peel said. "Are cattle markets in the same situation, set for a wild but short-lived ride into the stratosphere? Producers just don’t know and that is causing some concern."
Numerous factors at work
Peel said that the beef industry has never been in a situation exactly like it is now. However, when the factors that put the industry in the current situation are considered, there is good reason to believe current price structures are not a flash in the pan that will fizzle quickly.
"Unlike grain markets in 2008, cattle markets are not reacting merely to the short-run impacts of market shocks," he said. "There are numerous factors at work, most of which are long-term in nature and will persist for the foreseeable future. Although the phrase ‘perfect storm’ is overused, it may apply to the 2011 cattle market situation."
The underlying supply situation that is the major driving factor has been developing since the early 2000s, when drought conditions across a significant portion of the United States extended the last major cyclical herd liquidation.
"Bovine Spongiform Encephalopathy shocks in 2003 pushed the industry to new levels of intensity with tight feeder supplies offset by placing ever younger and lighter cattle into feedlots," Peel said. "This reaction worked well as long as corn was cheap."
By 2004, prices had reached a level that resulted in limited herd expansion in 2004 and 2005. In 2006, the world marketplace changed with grain prices jumping to new levels, which have continued fundamentally higher and provoked long-term beef industry adjustments that continue to this day.