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2008 feed costs loom large for cattle producers

Agriculture.com Staff 01/18/2008 @ 12:39pm

CHICAGO, Illinois (Agriculture Online)--Cattle experts say that although market prices will be lower in 2008 than a year ago, the bigger concern for producers will be the cost of feed.

With the soaring prices of corn, soybeans and wheat- important feed ingredients - cattle producers will find it tough to maintain profitability, experts say. And higher grain prices are not the only troubling factors facing producers in 2008.

2008 PRICE FUNDAMENTALS

Kevin Good, a senior market analyst for Cattle-Fax (a cattle marketing information service), says the overarching concerns for the cattle market are building.

"The values of calves and yearlings are threatened by higher grain prices, alternative land use spurred by urban sprawl, and increased crop acres. The added land uses decrease the amount of pasture and hay available for feeding cattle," Good says.

In addition, a drought in the southern Plains in 2006 followed by the same conditions in the Southeast in 2007 has exacerbated a reduction in the U.S. cattle population.

Jim Robb, Livestock Market Information Center, says though the dairy cow herd is growing, the beef-cow herd is shrinking.

So, Mother Nature has been a major factor in smaller herds. In addition, a decline in profitability has thwarted any rebound in herd shrinkage.

"Producers are still fundamentally profitable but not near to the scale that we were 2-3 years ago,” Robb says. "There's uncertainty in the producer's mind because they see the adverse reaction to calf prices due to higher grain prices. They see the volatility to calf prices may be just beginning rather than ending."

PRICE PROJECTIONS

Cattle prices will be both higher and lower than in 2007. It depends on which cattle you’re talking about, trade experts say. This wayward direction of prices could be the theme for 2008 and 2009, Robb says.

"We set record national average high prices in 2007 for fed cattle; we did not set record highs for feeder cattle and calf prices. We could easily set new record highs for fed cattle while having lower calf and yearling prices in 2008 and 2009. They are going in different directions and that needs to be understood," Robb says.

FED CATTLE

Specifically, based on a normal corn crop for 2008, fed cattle prices are estimated between $93 and $96 per hundredweight, 2% above 2007.

Fed cattle prices are affected by foreign and domestic demand, but not the U.S. supply side. Per capita, the U.S. beef supply will likely be smaller in 2008 and 2009. However, if the U.S. economy enters into a recession, the current price projections are too high, experts say. Plus, if the world economies head into a recession, these prices are too high.

Dr. Dillon Feuz, Utah State University livestock economist, sees 2008 spring prices in the mid-90s and going higher in the summer.

After a rough start to the year with pressure from large pork and poultry supplies, the cattle prices are seen gaining strength in March, April time frame, Feuz says.

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