October is a good month to describe the components that contributed to huge year-to-year increases in fed cattle prices because most of the data required are available, say economists from the Denver, CO-based Livestock Marketing Information Center (LMIC).
Several factors contributed to the year-to-year surge in beef and fed cattle prices. First in importance was the decline in the domestic supply of beef after adjustments for international trade (estimated net of imports and exports). Other factors that contributed to this year-to-year price surge included:
- Improved consumer demand for beef;
- Smaller marketing margins by packers and retailers;
- Higher byproduct values (liver, hide, etc).
Using conservative relationships, the year-to-year decline in per capita beef supply in the U.S. probably represented an $18-24/cwt. increase in live fed cattle prices in October 2003 versus a year ago.
So, after accounting for the impact of beef supply reduction on price (averaged at $21), the balance still to be explained of the $33 year-to-year increase in live fed cattle price is about $12/cwt. ($33 - $21). In explaining the $12, LMIC estimates put year-to-year increases in beef demand as the largest component, followed by smaller marketing margins and then higher byproduct values -- up $1-$2/cwt.
Compared to a year earlier, packers and retailers together captured smaller margins. In October, packers captured more, but retailer margins declined significantly.