It’s been a wild ride in the cattle market since live cattle futures plunged off record prices earlier this year, but profitability could still be in the cards in the near term for cattle producers.
According to Trevor Amen, animal protein analyst at CoBank, live cattle prices are expected to continue recovering since bottoming in early October with stronger prices lasting through the holiday season. Cow-calf operators in particular, he says, will remain in the black through 2016, albeit at lower levels than recently experienced.
“We’ve got cow-calf producer profitability that was the best we’ve seen in the industry last year. It will be lower in 2016, but still the second highest ever,” Amen said on the Monday, Oct. 19 broadcast of AgriTalk with guest host Chip Flory.
Amen detailed the steep drop and the recent bounce in cattle prices in a paper released earlier this month titled, “What’s Behind the Cattle Market Price Collapse?”
The downward correction in live cattle futures, Amen explains, was an overcorrection driven by an abundance of unusually heavy fed cattle, an increase in pork and chicken supplies, and market psychology that accelerated the decline.
The recent recovery in beef prices since establishing a contract low on October 1 at $128.10/cwt on the CME December live cattle contract will likely remain intact into the holiday season as consumer demand responds to the lower beef prices, he said. December cattle futures have rallied back above $140/cwt since bottoming three weeks ago.
“This recent decline in prices created some pretty incredible buying opportunities for retailers to really feature some beef at attractive prices and pass on those savings to consumers,” Amen noted. “So, that buying should continue to fuel this rally and give it strength from now until the holidays.”
In the long term, the aggressive rebuilding of the U.S. cattle herd will bring more downward pressure on beef prices for the next several years, he warned, noting that consumer demand remains the wild card on price changes.
“If consumers continue to purchase beef and we continue to see strong export markets, we can hold prices steady,” he said. “The demand is the greatest unknown and will be the biggest determining factor of any price change moving forward.”
To listen to the full discussion, click here for the My Farm Radio podcast. The interview with Trevor Amen begins around the 12-minute mark.