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Market Advisor: Will 2007 Cattle Price Volatility Continue in 2008?

A major factor that will continue to affect calf and yearling prices is the price of corn.

By Tim Petry, Livestock Marketing Economist

NDSU Extension Service

Cattle price volatility will continue in 2008. However, each market class of cattle has unique fundamental factors that will affect the price level and the degree of volatility.

A major factor that will continue to affect calf and yearling prices is the price of corn. Cash corn prices in the northern Plains averaged about $1.20 per bushel higher in 2007 ($3.50) than 2006 ($2.30). A rule of thumb is that a 10-cent-per-bushel change in corn prices causes a $1-per-hundredweight (cwt) change in the opposite direction in feeder calf prices.

Corn prices experienced much volatility in 2007 and may be even more volatile in 2008. Increasing demand for corn for ethanol production and the competition for planted acres from soybeans, wheat and other crops is fueling price swings.

2007 corn prices started the year at about $3.35 per bushel, increased 75 cents to $4.10 by the end of February, decreased 75 cents back to $3.35 by mid-May and then went back up to $4.10 by mid-July. A decline of $1.10 per bushel to $3 occurred by mid-September, but prices went up to $3.45 by the end of September and then back down to $3 early in October. From the harvest lows in October to the end of December, prices rallied $1.25 per bushel to close the year sharply higher at $4.25.

Planted acres of corn increased from 78.3 million acres in 2006 to 93.6 million in 2007. However, with the relatively high current prices for wheat and soybeans, corn acreage is expected to decline in 2008. As reports about expected plantings and weather conditions in the Corn Belt, as well as other countries, are released, the grain and oilseed markets will be volatile. The USDA Prospective Plantings report will be released on March 31, but several private forecasts will come out before that.

Prices for 550- to 600-pound steer calves in the northern Plains averaged about $5 per cwt lower in 2007 than in 2006 because of higher corn prices. However, during the fall marketing season (October through December), prices averaged $2.50 higher than 2006, with stronger fed cattle prices offering support.

Volatility was evident with prices starting the year at $110 per cwt in January and moving higher to average $125 per cwt in April through September, but falling back to $112 per cwt by the end of the year.

Prices for 750- to 800-pound feeder steers averaged about $2 per cwt lower in 2007 than 2006, but were $2 per cwt higher during October through December.

Prices in 2007 reached lows at $95 per cwt in February and March, when corn was more than $4 per bushel, but increased nicely to $116 per cwt in early October, when corn hit the $3-per-bushel harvest low and fed-cattle prices reached $95 per cwt. Prices fell throughout fall to $100 per cwt in late December, as corn increased to more than $4 per bushel and fed cattle fell back to the low 90s. Adverse winter weather in Colorado, Kansas and Nebraska also reduced feedlot demand in late December.

Prices for both classes of feeder cattle would have been lower due to the higher corn prices if fed cattle had not been at a record high in 2007. Fed-cattle prices in 2007 averaged about $6.50 per cwt higher than the previous year.

Price volatility in fed-cattle prices was caused by struggles with Korean and Japanese markets, issues with the U.S. economy, prices of competing meats and the aggressiveness of a new packer, JBS-Friboi, which purchased Swift and Co.

After lows in late January at $86 per cwt, prices steadily increased to the $100-per-cwt level in early April because of increasing export demand and high broiler prices. Fed- cattle prices retreated back to $86 per cwt in late June because of increasing slaughter levels and problems with meeting beef export specifications in Korea and Japan. Prices climbed back to $95 per cwt by the end of September, but averaged $92.50 per cwt in October through December as supplies of chicken and pork increased and the economy struggled.

Beef production in 2008 will be close to 2007 levels, so price volatility will come from the demand side. A general weakness in the U.S. economy, high pork and chicken production and uncertainty in the beef export market will affect prices.

Cow prices also had a roller coaster ride in 2007. Prices started the year in the mid-$40s, climbed to the mid-$50s during the summer and plummeted back to the mid $40s during September and October as competing chicken prices fell, hamburger was recalled in the retail market and the slaughtering of cows increased both seasonally and because of the drought in the southeastern part of the U.S.

Prices further declined to the low $40s the week before Nov. 19 because U.S. producers marketed many cows ahead of the Canadian border opening to cattle more than 30 months old. Prices recovered back to the mid-$40s in December.

Cow prices should be relatively high again in 2008 as long as widespread drought does not materialize, but again could experience large seasonal swings.

Volatility in both livestock and crop prices may be frustrating to some, but along with it may come some excellent marketing opportunities. There are several price risk management tools available to cattle producers, which should be considered when marketing plans for 2008 are developed.

NDSU Agriculture Communication

Source:Tim Petry, (701) 231-7469,
Editor:Rich Mattern, (701) 231-6136,
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