Much of agriculture is taking a big hit from the recessionary economy, and the beef sector is no exception as weak retail demand has lowered finished cattle prices. The magnitude of the hit is hard to measure precisely, but consider that late last summer the price outlook for the first quarter of 2009 was for finished steers to average about $94 per hundredweight. As the economy weakened, cattle prices fell and only averaged $81.50 in the January to March quarter. A reduced price of $12.50 per hundredweight represents a revenue reduction of $750 million in the first quarter alone.
Cattle prices have paralleled the decline, and more recent recovery, in the U.S. stock market. Since September, the Dow Jones Industrial Average index and finished cattle prices have been nearly 90 percent correlated using weekly data. Of course the stock market does not determine cattle prices, but since last September they have both been highly influenced by macro economic conditions that reflect weak demand.
Supply is not the reason for low cattle prices. In the first quarter of the year, per capita beef supplies were down about three percent, and gave rise last summer to the anticipation of mid-$90 finished cattle prices in the first quarter. Beef supplies will remain about three percent below previous year levels into the second quarter of 2009, but will be up about two percent in the third quarter and unchanged in the final quarter of the year. A smaller beef cow herd and fewer cattle in feedlots have provided generally smaller beef supplies.
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