April 2012 live-cattle futures “shouldn’t fall below $121/cwt. and cash cattle could see $130-$135 and even run up to $140 by May,” says an extremely bullish Dan Basse, Chicago-based agricultural price analyst and consultant.
Basse, president of AgResources, Co. in Chicago, spoke last week at the Certified Angus Beef©-sponsored Feeding Quality Forum in Omaha, NE, and Garden City, KS. Along with high cattle prices, Basse projects corn prices to remain high and says any sharp break in prices may be a signal to get some corn bought, because prices likely won’t stay down too long.
“I really don’t know what the high will be (in cattle prices) early next year,” Basse says in reacting to various factors that will pressure prices to remain strong. “Our beef exports are up and, for the first time, they are higher than our beef imports.”
He expects foreign demand for U.S. beef to partially offset a stagnant domestic demand hurt by the still-troubled economy. “Consumers are not spending,” he says. “Restaurants are seeing a drop in customers. But China and other countries are seeing steady growth. China’s gross domestic product (GDP) is growing at an 8-12% level (while the U.S. GDP is less than 2%).”
Basse projects continued tight feeder-cattle supplies “because we have to wonder where the feeders will come from, with drought hurting Mexican cattle herds like they are here (in the Southern Plains). So expect feeder cattle prices to remain high.”
Corn prices should remain strong due to low stocks and a strain to keep U.S. production levels up. “A year ago, corn had to go to $7/bu. to buy the 93 million acres we needed (to produce 12-13 billion bu.),” Basse says. “What price do we need to get 93 million next spring? Probably $7 or higher again.
“So if we get December corn to $6-$6.20, that’s a hard buy to make, but it’s still a buy.”
He encourages cattle feeders to measure their margins carefully. “Margin is the new mantra,” Basse says, and stresses that the focus should be on whether “feed and forage costs are manageable.”
With the threat of another La Niña weather pattern that could parch the Southern Plains with another drought in 2012, he fears further cowherd reduction.
“I’m hopeful that the balance side of it is positive (for Texas, Oklahoma and other regional ranchers),” he says. “But if, in the middle of 2012, we still see drought and have little wheat pasture, we may see some foundation herds move northward. That’s what happened in the droughts of the ’30s and ’50s.”