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What's driving cattle prices?

Agriculture.com Staff 03/04/2011 @ 1:51pm

Tight supplies and strong demand propelled fed cattle values into another record-breaking week Feb. 28-March 4, but cattle feeders’ profits are not as lofty as some might expect, Kansas State University agricultural economist Glynn Tonsor says in a university report.

Average prices for cattle in U.S. feedlots hit $112 to $113 per hundredweight (cwt) March 2 – a $1 to $2 increase over the previous week’s record-setting prices, according to the U.S. Department of Agriculture. That was $19 to $20 per cwt higher than the average price of about $93 a year ago and about $25 per cwt higher than the five-year average (2005-2009).

“Fed cattle prices are expected to generally increase throughout this year, but profits won’t necessarily rise or set historic records because of higher corn and feeder cattle prices,” said Tonsor, who spoke at K-State’s Cattlemen’s Day in Manhattan March 4.

Based on CME live cattle futures, Tonsor said second quarter prices are expected to average about $115 per cwt, third quarter expectations are around $117, and fourth quarter prices are projected to average $119 per cwt.

With regard to beef supplies, Tonsor, who is a livestock marketing specialist with K-State Research and Extension, noted that many cow-calf producers will likely continue to respond to high prices by selling off cows. The shrinking cow herd ensures beef supplies will continue to tighten for months to come.

“That part of the support in (cattle) prices will not change for at least another 18 months as 2013 appears to be the earliest that will change in a national, aggregate sense,” he said.

Tonsor said despite the historically high prices feedyards are paying for cattle, some are willing to run at a loss as long as they cover their variable expenses. Both feedyards and slaughter plants have an over-capacity situation right now, which is helping boost light-weight steer prices beyond some break-even calculations, he added.

Cattle prices also are being boosted by strong demand from U.S. as well as overseas buyers.

“Exports were strong in 2010 and there is every current indication that will continue throughout this year,” the economist said, adding that the weak U.S. dollar, compared with other currencies, has benefitted the export scenario.

In addition, the U.S. is importing less beef than it has in recent years, he added, noting that beef and veal imports in 2010 were below the previous year’s number and below the most recent five-year average.

USDA data illustrates the supply picture

The USDA on Jan. 28 estimated the total number of cattle and calves in the United States as of Jan. 1, 2011, at 92.6 million head, 1 percent below 93.9 million on Jan. 1, 2010. That was the lowest Jan. 1 inventory of all cattle and calves since the 91.2 million on hand in 1958.

In the same report, the number of all cows and heifers that have calved, was pegged at 40.0 million, down 1 percent from the 40.5 million on Jan. 1, 2010. Beef cows were tabbed at 30.9 million, down 2 percent from a year earlier. Milk cows were reported at 9.1 million head, up 1 percent from Jan. 1, 2010.

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