Cattle market regaining groundWritten by Jennifer Womack
“That compares to last year when we averaged $1.04 the last quarter,” says LMIC Director James Robb. His price predictions are based on cattle on the Southern Plains and he says that producers across this region may see a $2 to $4 per cwt. premium. “That still doesn’t make profits for many producers, but it’s moving in the right direction,” says Robb.
Fourth quarter 2010 LMIC is predicting prices in the $1.15 to $1.20 range with an average of $1.19 to $1.20.
Robb, like any agricultural economist these days, doesn’t overlook the possibility of outside sources weighing in on the market. In the past 10 years he says the industry has seen the impacts of 9/11, BSE and more recently, recession. Each scenario left the industry in a nine to 11 week recovery period. Expansion of the drought and changes in the corn market are two factors within the agricultural industry that could also set the market on a new course.
“Demand is key to how prices will behave over the next six months and next two years,” says Robb noting the consumer movement toward lower cost cuts at the meat counter instead of restaurants. As the economy recovers so will the market for higher end cuts, predicts Robb. Moving into the fourth quarter of 2010 he predicts five to six-weight calf prices to return to the $1.20 per cwt. range.
Uncertainty in the corn market, now linked to the oil market, will continue to cause volatility within the livestock markets. Everything else constant, Robb says a 10-cent increase in corn costs results in a $1 per cwt. drop in the price paid for five to six weight feeder calf. Robb says it’s a scenario that long-term will continue to drive the demand for the placement of heavier cattle in the feedlot. “Forage based growth is much more economically profitable than it was just a few years ago,” says Robb.
Robb says it’s easy to see where a return to $7 corn could create a significant amount of downward pressure on the livestock sector. If oil returns to $75 per barrel he says, “It adds a new source of volatility and competition in the marketplace from someone who can bid corn away from livestock depending on the cost of oil.” He says, “That volatility will spill over to cattle prices, especially lightweight calves.”
“Forage based production systems, and especially forage based production systems not dependent on fertilizer to grow grass, are areas economists would call having an increased competitive advantage in the protein production system,” says Robb.
He says it’s a scenario that will result in more ranchers considering the change from a cow-calf operation to a cow-calf and yearling program.
Of the cull cow market under pressure from a reduction in the nation’s dairy herd, Robb says hold tight as prices will recover. Between 7,000 and 10,000 more dairy cows are heading to slaughter each week compared to this time a year ago in what will eventually result in a 300,000 to 400,000 head reduction in the nation’s dairy herd.
“As we look ahead two to three years from now,” he says, “these cull cows will be much higher than they are today.” He says they may reach historically high levels.
Robb says the supply side is going to be supportive of cattle prices. “That happens down the road, but it starts in 2010,” says Robb. It’s the timeframe on which the nation’s economy is expected to begin recovering. In the meantime, he says the nation and the world’s cowherd continue to decline in numbers.
From a marketing standpoint, Robb says it’s important for livestock producers ranging from those who sell calves to those who retain ownership to know how their cattle perform in the feedlot. Beyond the historically important numbers, relatively new findings like feed efficiency will also be important.
On source and age verification, he predicts premiums for age verification on beef destined for the Japanese market will diminish. Process and source verification, however, he says will grow in importance.