Cattle Price Strength Expected Through 2010
For the first time in a long time, there’s optimism about producing and feeding cattle. Livestock economists tell BEEF that fed-cattle markets could trade close to $100 for the second half of 2010
June 2, 2010
For the first time in a long time, there’s optimism about producing and feeding cattle. Livestock economists tell BEEF that fed-cattle markets could trade close to $100 for the second half of 2010.
But as cattlemen have seen too often, volatility can wreck a good thing. All warn that their forecasts may become fractured if weather or other unpredictable forces mangle market trends.
Shane Ellis, Iowa State University livestock marketing specialist, forecasts Midwest fed-cattle prices in the $91-95 range the second half of the year. “Short supplies coupled with stronger demand and exports are likely why prices will be in those levels,” he says, adding that “the Choice-Select spread will improve on slowly strengthening higher-quality- beef demand at retail and restaurant sectors.”
Darrell Mark, University of Nebra-ska livestock marketing economist, says he expects third-quarter, fed-cattle prices to be about $89-93, basis-Nebraska direct market. “By the fourth quarter, I think we could be in the low- to mid-$90s,” he says.
Don Close, Texas Cattle Feeders Association market director, likes the $90 bottom. “We’ll look at summer lows in the July-August period in the $90-92 slot,” he says. “Late-third and early-fourth periods should see peaks back to $98-100, and a $95-98 slot in the late fourth quarter.”
Mark says that if the strong prices are realized, they will be substantially higher than last year when prices in the third and fourth quarters averaged $82-83. “Supply-side factors continue to lend the most support to fed-cattle prices,” he says. Cattle-on-feed inventories have been averaging 3% lower so far in 2010, and placements (in February and March) were running about 2% below year-ago levels.
“Combining that with fewer expected imported cattle from Canada, slaughter numbers will likely drop 2-3% the third quarter compared to third quarter 2009. Slaughter numbers for the fourth quarter could see an even bigger decline relative to last year, in the 3-4% area.”
While the drop in carcass weights the first half of the year isn’t likely to continue into the last half, Mark says declines in commercial beef production of about 2% later this year are expected. Carcass weights will eventually start growing again “as we get away from the poor winter weather conditions and feedstuffs are relatively plentiful and generally cheaper.”
Feeder cattle and calf prices
Feeder-cattle prices surprised everyone by climbing this spring, but Mark believes some normalcy will return to feeder markets in the third and fourth quarters. He says Nebraska prices for 700- to 800-lb. steers could average $105-115/cwt. in the third quarter and $99-108 in the fourth.
“Calf prices (for 500-lb. steers) in Nebraska could be in the $130-135/cwt. range in the third quarter and $125-135 in the fourth, substantially higher than in 2009,” he says.
Higher prices are partly attributable to a very tight calf supply. Last year’s calf crop was 35.8 million head, the smallest since 1950. Demand for feeder cattle has also improved markedly, driven by the rally in fed-cattle prices in the first quarter, combined with weakness in corn and feed-grain prices, and renewed feeding interests in 2010.
“Given ample bunk space and large corn crops and distillers grains availability, this feeding demand should remain relatively strong into the rest of 2010,” Mark says. “That will, of course, depend heavily on the corn price.”
Ellis projects prices for 7-8 weights in the $110-115 range in the Midwest. “Feeder prices will improve as cattle feeders return to profitability,” he says. “Right now some feeders can secure a slightly profitable margin for 2011 cattle on the futures.”
He also sees higher calf prices based on higher demand and tighter supplies, projecting Midwest calf prices in the $123-135 range.
Given the strength in feeder prices, Close wonders what it will take to start herd rebuilding. “We have the recharge in all segments of the country and calf prices in the $130-135 range, yet all indicators tell us we’re still liquidating females,” he says. “What will be the signal required to get those guys to expand?”
Corn prices