Shrinking Cattle Herd Leads to Shrinking Retail Market Share

September 27, 2013 06:22 AM
 
Cow Herd

America’s shrinking cattle herd has fueled a price rally that has cattle producers cashing significantly larger checks this fall. Feeder cattle and calf markets have experienced a contra-seasonal rally that’s pushed prices to near-record levels, always good news for your bank account. There is a downside, however, to higher prices.

Retail beef prices are at record levels and they’re likely to go higher, causing many analysts to openly wonder "how high is too high?"

Retail beef prices have inched higher nearly every month this year as smaller beef supplies impact the market. Last month’s average retail beef price exceeded the retail price for the same month last year by 6 percent, and the average price now approaches $5 per pound.

With retail prices already at record levels, analysts look ahead at production data and grow concerned. Specifically, they note that cattle placements into feedyards during August fell 11 percent from a year earlier to their lowest level in 17 years. Fewer placements suggest declining beef supplies in the months ahead, and higher prices.

Cattle futures markets have already begun to factor in lower supplies. Next spring’s live cattle futures contracts are priced at a $10 per hundredweight premium to the current cash price, which analysts say translates into a beef cutout price around $215 per hundredweight, which is nearly $22 per hundredweight higher than the current price.

Retailers see the trend in the numbers ahead, too, and they’re likely planning strategies to keep their customers happy. Those plans will, no doubt, factor in ample supplies of pork and poultry offerings for consumers reluctant to pay higher retail prices for beef. Analysts believe the pork and poultry industries will benefit more from lower grain prices, and they also note rebuilding the beef herd will take much longer to achieve. Most beef industry data watchers expect producers to begin rebuilding their herds next year, but that’s a slow process compared to the turn-around the pork and poultry industries can achieve. Those production certainties mean beef’s retail market share will decline over the next couple of years.

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