Editor's Notebook: Positive Outlook for 2011

December 28, 2010 05:36 AM

O n the topsy-turvy roller-coaster ride of cattle prices this past year, one thing that most economists agree on is that the cattle industry remains in a strong position going into 2011. Cattle supplies continue to be at their lowest while demand is steady. The one monkey wrench in what could be a great year for cattle producers is high feed costs.

Corn prices look to continue trending higher, meaning the cost of grains will also increase for those feeding cattle. That will keep expansion in the cattle industry at bay in the near term.

Purdue University Extension ag economist Chris Hurt said in October, “The most recent surge in feed prices will likely keep producers from expanding until feed prices moderate. That will not be until the 2011 U.S. crops are assured, which is still at least 10 months away.

This means cow numbers will not likely expand until 2012 and that beef supplies will not start to grow until 2014.”

Texas AgriLife Extension econ-omist David Anderson agrees. “I think we will continue seeing beef production and cattle numbers drop off in the next couple of years,” he says. “We are forecast to produce 25.4 billion pounds of beef in 2011 versus 25.9 billion pounds in 2010. That will lead to increases in price, but it also depends on corn prices and [their effect on] calf prices.”

Anderson expects to see higher calf prices next year, but not as high as he first estimated earlier this year. His 2011 forecast has 600-lb. calves priced at $104 to $112 per cwt. and 700-lb. to 800-lb. calves priced at $99 to $105 per cwt.

Hurt expects records to be broken next year, with Nebraska finished steers averaging in the low $100s. “Prices are expected to be in the low $100s during the first quarter and then reach yearly highs in the second quarter, when they may average about $105,” he says.

“Price forecasts tend to have large errors, so consider a range of at least $3 higher or lower from
these forecasts,” Hurt cautions.

He also points out that high feed costs are affecting not just beef producers but other protein producers as well. That will limit expansion among all the animal protein segments.

Given the volatility in feed costs, what are your cattle production plans for 2011? Do you plan to change or expand your operation? Or will you wait and see if feed costs stabilize? Do you plan to utilize risk management tools to take advantage of the market?

Let us know what you think, as we head into 2011. Drop me an
e-mail at kwatson@farmjournal.com.

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