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Higher Cattle Prices Coming?

2009 was certainly a disappointing year for cattle prices. Many cattle producers want to know if cattle prices will increase and when that might happen. The simple answer is yes, cattle prices will increase. However, the timing and magnitude of the increase is difficult to answer with any degree of certainty.

Although it may seem like cattle prices have been low for a long time, fed-cattle, cull-cow and bull prices actually were at a record high in 2008. Before that, the previous record high year was 2007. So, we are not that far away from previous record prices for those market classes.

On the feeder cattle side, the last annual record high was in 2005, when 500- to 600-pound steer calves in the U.S. averaged about $130 per hundredweight (cwt) and 700- to 800-pound steers averaged $113. The 500- to 600-pound steer calf prices declined to $115 cwt and 700- to 800-pound steers averaged $105 in 2008. This happened despite record fed-cattle prices because of high feed prices, especially corn. The national average corn price received by farmers doubled from about $2 per bushel in 2005 to slightly more than $4 in 2008. Feeder cattle prices declined another $6 to $7 per cwt in 2009, with 500- to 600-pound weights averaging $110 and 700- to 800-pound weights averaging $97.50.

Historically, increasing cattle numbers and beef supplies have been the major cause of lower prices. However, supplies have not been the problem. The U.S. calf crop declined by 1.5 million head from 37.1 million in 2005 to 35.6 million in 2009. A lower calf crop is likely again in 2010. Producers reduced cow numbers in response to lower prices, higher costs and drought in several important cattle-producing regions in the country.

Beef production was down almost 2.5 percent in 2009 and likely will decline another 1.5 percent in 2010 and 1 percent in 2011. So beef supplies will not be a problem and should be supportive to prices in the future.

Of course, it is demand and not supply that adversely affected fed- cattle and cow prices in 2009. That will be the case again in 2010.

Some get tired of hearing the nightly news programs continue to report how bad the economy is, but the fact of the matter is that poor economic conditions in the U.S. and world have a big impact on cattle prices.

Historically, almost half the beef consumed in the U.S. is eaten away from home, but the restaurant business has been struggling under the poor economy. The U.S. unemployment rate is close to 10 percent, and in some cities, it is much higher than that. Plus, the savings rate for those still working has increased substantially from levels of the past decade. So consumers have much less to spend on beef.

Beef exports, which still were being impacted by lingering effects of the BSE issues that began in 2003, now are being impacted by world economic conditions. U.S. beef exports for January through October 2009 were down about 5.5 percent from 2008.

For beef and cattle prices to improve, the economic conditions in the U.S. and world need to improve. When that will occur is a hotly debated topic, but there are signs that improvement should occur in 2010. The stock market has made a nice recovery from an early 2009 low, but unemployment is expected to stay high for some time.

Modest improvement in cattle prices is likely in the second half of 2010. However, record prices for any market class will be difficult to achieve.

Both beef and dairy cow slaughter likely will be lower in 2010. Hamburger tends to sell well even in a weak economy, so cull cow and bull prices may have the most potential to show improvement. Improving economic conditions the second half of 2010 should support fed-cattle prices.

Pasture and range conditions in much of the cattle-producing areas of the U.S. are the best they have been in a number of years. If good moisture continues, prices for lighter-weight feeders suitable for grazing should increase nicely into spring. Prices for the heavier- weight feeder cattle destined for feedlots will be dependent on improving fed-cattle prices and no additional spikes in corn prices.

Fall 2010 corn prices are the big wild card in fall calf prices. We will need another very good corn crop to keep prices at levels that support calf prices.

2011 has the potential to be a much better year for prices of all classes of cattle. Consumers still like beef, so when they regain purchasing power, they will buy.

Cow-calf and seedstock producers should make plans for better prices. Replacement heifers may be in strong demand in 2011.