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Cattle producers face a high-priced future, experts say

Published on December 9, 2011 3:01AM

Last changed on January 6, 2012 9:29AM

Domestic and foreign demand will continue to grow, many predict


Capital Press

Call it the new normal.

Cattle prices have hovered near record highs for more than a month, and experts say they aren't likely to recede soon.

Skyrocketing grain prices are among factors that have contributed to live cattle futures that approached $130 per hundredweight for much of November, explained Dan Sumner, director of the Agricultural Issues Center at the University of California-Davis.

"We all know that behind the live fed cattle prices are very high grain prices," Sumner told the Capital Press. "We did go through a period when nobody was making any money at all because grain prices were high and cattle prices weren't high enough. Now it's been obvious for a while that grain prices aren't coming back to normal anytime soon, so fed cattle prices have to be high to account for that."

Grains futures were rising in trading Dec. 5 on the Chicago Board of Trade, as wheat for March delivery hit $6.28 a bushel and March corn went to $6.01 a bushel. On the Chicago Mercantile Exchange that day, February live cattle settled at $1.2295 a pound while January feeder cattle was at $1.4680 a pound.

By comparison, on Dec. 6, 2010, while March wheat and corn were trading above $7 a bushel, February live cattle went for $1.0650 a pound while March feeder cattle gained 0.28 cent that day to $1.1975 a pound.

Cattle prices will likely remain strong for many years, Randy Blach, the executive vice president of CattleFax, told a Kansas livestock group last week.

Beef cow inventories had already been sliding for the past six years -- putting the nation's herd at 30.9 million head in 2010 -- before drought this year affected operations in Texas, Oklahoma and elsewhere in the South. This prompted many producers to cull breeding cows as hay prices skyrocketed.

But if forecasts projecting more rain in those regions hold up, ranchers are expected to keep more of those cows to replenish their operations, causing the number of females slaughtered to drop by as many as 1 million during the next two years, Blach told the Kansas Livestock Association.

"Lean beef prices are going to get higher," he said.

Another factor in rising cattle and beef prices is the torrid pace of exports to places like Mexico and Asian nations. Through September, U.S. beef exports for 2011 stood at 967,388 metric tons valued at $4 billion, increases of 26 percent and 39 percent, respectively, over the first nine months of 2010, according to the U.S. Meat Export Federation.

And exports could be even more robust next year, as the United States' free-trade agreement with South Korea, Colombia and Panama have been ratified.

It's a matter of "simple supply and demand," said Colin Woodall, vice president of government affairs for the National Cattlemen's Beef Association.

"We continue to have great demand in the United States from our domestic customers, and continued growing demand from our international customers," Woodall said. "Beef exports have been strong into Canada, Mexico and the Asian markets. With the signage of the three free-trade agreements, it'll continue to grow."

Bolstered by this strong export demand, beef prices rose by 14 percent between 2010 and 2011 and could reach an average of $5 a pound in 2012, according to CattleFax projections.

Kevin Kester, president of the California Cattlemen's Association, believes the high prices will continue unless another global recession or disease outbreak set them back.

"As long as everything stays on a normal course, I see higher prices across the board," he said. "I don't see them coming back down for a number of years, if at all."

The Associated Press contributed to this report.


UC-Davis Agricultural Issues Center: http://aic.ucdavis.edu/

CattleFax: http://www.cattlefax.com

National Cattlemen's Beef Association: http://www.beefusa.org

California Cattlemen's Association: http://calcattlemen.org


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