The beef-production sector has suffered one of the most dramatic negative impacts from the general economy, says a Purdue University Extension ag economist. But this sector also has the potential to have one of the most dramatic positive responses when the world returns to normalcy.
"As beef-cow numbers continue to drop, beef exports continue to improve and the world economy begins to heal, the magnitude of price improvement may be robust by sometime in 2010," says Chris Hurt. "A return to finished-cattle prices of $1/lb. or higher seems probable as per-capita beef supplies will be low and competitive meat supplies will drop as well."
Last summer, finished steers were expected to average about $94/cwt. in first quarter 2009, Hurt says. As the economy weakened, cattle prices fell and averaged only $81.50 in the January-March quarter – that's $12.50/cwt. less than expected, which represents a reduction in potential revenue of $750 million just in the first quarter, Hurt says.
He says finished-cattle prices are moving almost in lockstep with the U.S. stock market. "Using weekly data since September, the Dow Jones Industrial Average index and finished-cattle prices have had a correlation of nearly 90%. Of course, the stock market doesn't determine cattle prices, but they’ve both been influenced by macroeconomic conditions, which reflect weak demand,” he says.
"And finished-cattle prices, like the stock market, had a big recovery in the past six weeks – moving from near $80 to $89."
But because of seasonal tendencies, Hurt's not sure these higher prices are here to stay. He expects finished-cattle prices to average in the mid $80 range during the second quarter then increase a couple of dollars during the summer months.
"Assuming the economy has bottomed out by late 2009, I expect finished-cattle prices to return to the high $80s to the very low $90s," Hurt says. "If this happens, steer-calf prices should average $100-$110 this fall, compared with $95-$105 last fall."
Hurt says the key variable for finished-cattle prices is the direction of the general economy. Feeder-cattle and calf prices also will be influenced by the direction of feed prices and pasture availability, he adds.