Beef Magazine is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

The 2006 Cattle Outlook

Fed cattle prices hovering steadily above $90/cwt. much of the year, feeders at $1.10+, and calf prices close to as strong as a year ago. Those price projections for 2006 are certainly pleasant after seeing markets seemingly ready to roll downhill earlier this fall. It's just another example of what's been proven many times over cattle prices can rebound or decline at any time. In this case, the markets

Fed cattle prices hovering steadily above $90/cwt. much of the year, feeders at $1.10+, and calf prices close to as strong as a year ago.

Those price projections for 2006 are certainly pleasant after seeing markets seemingly ready to roll downhill earlier this fall. It's just another example of what's been proven many times over — cattle prices can rebound or decline at any time. In this case, the markets are higher, despite negatives.

“The resilience of this overall market after the loss of exports (the past two years), high energy costs and other problems has been great,” says Jeff Rule of West Oak Commodities, a Weatherford, OK, firm that handles cattle risk management for cow-calf, stocker and fed cattle producers. “I don't know if there's ever been another time the industry could shake off so many negatives and keep going.”

Despite what feed prices, calf supplies, consumer demand and other factors might suggest, forecasting cattle markets is rarely an exact science. Those who will guarantee exactly what the price will be might also be pushing the latest snake oil.

“It's really hard to predict what the market will do,” says Jim Gill, Texas Cattle Feeders Association (TCFA) marketing director. “But as long as we see cheap corn and tighter feeder cattle supplies, prices should remain strong.”

Gill, who's fielded thousands of “what's the market going to do” calls in his two decades at TCFA, is fairly bullish for 2006, based on early-December conditions.

“I think we'll see fed cattle in the mid-$90s the first quarter,” he says. “The low- to mid-$90s are likely for the second quarter, and I see high $80s in the third and fourth.”

Darrell Mark, University of Nebraska Extension economist, sees Nebraska fed-steer prices in a little lower range. He projects first-quarter prices at $87-$93, with second-quarter forecast at $85-$90. He pegs third-quarter prices at $79-$84, and forecasts the last quarter at $82-$87.

“Overall, cattle supplies remain relatively tight, and domestic demand is up from previous years,” Mark says. “This should result in fed-cattle prices averaging in the mid-$80s for 2006.”

But, with small increases in cattle-on-feed numbers and heavier weight placements the final months of 2005, Mark says harvest numbers are expected to increase 4% from 2005 during the first quarter and remain higher than year-ago levels throughout the year.

That, combined with an expected increase in dressed weights (6-7 lbs.) the first half of 2006 due to low corn prices, “should lead to increases in beef production of 4-5% for the first half of 2006. This supply increase will likely result in fed cattle prices slightly lower than in 2005,” he adds.

Gill anticipates continued high feeder-calf prices — good news for stocker and calf producers, but a frown for cattle feeders.

“I won't say they'll stay at near $115 (cwt.) all year, but I don't see any major breaks in feeder prices,” Gill says. “There will be some cyclical ups and downs, but they should remain strong.”

Mark also sees continued strong feeder prices for 700- to 800-lb. animals. His first-quarter projections are for prices in the $114-$118/cwt. range, and second-quarter prices slightly lower at $110-$116/cwt. He forecasts third-quarter prices at $111-$117/cwt., with $103-$113/cwt. in the fourth.

For 500- to 600-lb. calves, Mark expects continued high prices, thanks to stronger fourth quarter '05 fed-cattle closeouts and rallies in live cattle futures that should continue to support higher feeder cattle prices. He sees calf prices at $125-$135/cwt. for the first quarter, $125-$134/cwt. for the second, $120-$130/cwt. for the third, and $108-$118/cwt. for the fourth.

“The estimated calf crop in 2005 was 37.8 million head, only 0.5% higher than the record small calf crop in 2004,” Mark says. “With tight supplies and cheap corn, calf prices should remain relatively strong throughout 2006.”

However, he says an increase in the 2006 calf crop is likely, given the 4% increase in heifers held for beef cow replacements in both 2004 and 2005.

“Thus, calf prices will likely begin to decrease next fall when a larger 2006 calf crop is weaned,” Mark adds.

Prices for calves could be more volatile in areas where dry weather has stunted winter grazing.

“For example, it's been pretty dry in western Oklahoma and Texas,” Rule says. “We could see more calves go directly to the feedyard due to less pasture.”

Corn by the bins full

If USDA and other crop projections remain as high as those in late fall, so-called “cheap corn” will keep flowing into feed mills. Late-fall production figures were 11.03 billion bu. for 2005. And the carryover from 2004 was 2.1 billion bu.

Bob Wisner, Iowa State University (ISU) grain marketing economist, says estimated production compares with projected total use of corn for 2006 of about 10.8 billion bu., with the rest of the crop going into increased carryover stocks.

Aug. 31, 2006, U.S. corn carryover stocks are projected to rise to almost 2.4 billion bu., up from the 2.11 billion bu. in Aug. 31, 2005, he says in a recent “Iowa Farm Outlook” report.

Will demand continue to grow? It's difficult to know how much the anticipated opening of Asian markets for U.S. beef is built into the current market.

“At least some of the bullishness in recent fed-cattle prices resulted from the idea the Asian Rim countries will resume U.S. beef imports in 2006,” Mark says. “Interestingly, the impact might be smaller than many believe, for a couple of reasons.”

First, he says, Japanese demand remains uncertain. While some food-service providers are anxious to purchase U.S. beef, its acceptance by Japanese consumers has yet to be determined. After nearly two years of Japan questioning the safety of U.S. beef, some consumers will likely be hesitant to buy U.S. product, he adds.

“Therefore, it may take considerable time to reassure consumers of its safety, and increase exports to an economically significant volume,” Mark says.

Glenn Selk, Oklahoma State University economist, says when access is finally granted the U.S. industry could be in for a lengthy process of recovering the Japanese market. One factor is the verification requirement that all meat is from animals 20 months of age or younger. The U.S. still has limited ability to provide acceptable records to verify cattle age, Selk says.

Also, since the U.S. has been out of the Japanese market for nearly two years, other countries have filled the void. And, Selk adds, it's likely Canada will receive Asian market access about the same time as the U.S., and will be a bigger competitor than before.

“The U.S. has a difficult challenge ahead in the Asian markets, and it will likely take several years to recover anywhere near our pre-BSE exports levels,” he says.

Shane Ellis, another ISU economist, notes demand for U.S. beef could increase as concern over avian influenza grows.

“Bird flu continues to spread in the Asian poultry flocks,” he says. “Some cases also have been found in Europe.

“Humans can only get the disease from sick birds, and thoroughly cooked meat is completely safe. However, consumer fear, especially in Eastern countries, could push consumers to alternative meats. This is a familiar story to the beef industry, but perhaps this event will be in beef's favor,” he adds.

Ellis says the discovery of foot-and-mouth disease in Brazil is hurting its exports. But, most Brazilian beef is grass-fed and in the price range of consumers in countries with lower disposable incomes. As a result, U.S. beef may not find a place in that market.

“U.S. beef will benefit by gaining market share in countries where the population has a large disposable income and a taste for well-marbled meat,” he says.

Cattle markets uncertainty means producers and feeders should become more prudent marketers, Rule says.

“Due to the sheer number of dollars involved, it's important to think about locking in a profit for the inventory you have out,” he says. “Think about it. What is the value of 500 cattle now compared to 10 years ago? That risk probably needs to be covered some way. I try not to worry where the market is, just how a producer can use the marketing tools available to make some money.”