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What It Will Take For Better Beef Market

As goes the general economy, so goes the beef economy.

That point was brought home forcefully at the 2010 Cattle Industry Convention by economists from CattleFax, an industry market analysis firm. CEO Randy Blach told beef producers anxiously looking for some good news that the drop in beef demand in 2008 and 2009 took over $140 a head from their pockets. Average fed cattle prices dropped about $10 per hundred pounds in that time span.

"But we noticed that the drop in beef demand flattened out in the last half of 2009," he told the cattle producers. "While there might be some further declines in 2010, it won't be as drastic," as the general economy is expected to continue to strengthen.

Combined with further shrinking of the U.S. beef herd (down another 1% from last year), cattle prices are expected to rebound, perhaps back to a point of modest profitability for most producers in 2010.

CattleFax thinks the price of 350-pound steer calves will average between $111 and $113 per hundred pounds in 2010, up from the $107 average of 2009. Highs could peak around $117 per hundred in the spring.

That good news comes as a result of the incredibly shrinking cow numbers, which means fewer calves for feedlots to chase. Total cattle numbers were down another 1% on January 1, after a 2% drop last year.

The calf crop that will be marketed in 2010 is also down 1%, making it the nation's smallest calf crop in almost 50 years of records.

While that's not good news for beef producers who haven't survived the crunch, it speaks well for those who have hung on.

"Calf prices have bottomed and are on the verge of a several-year uptrend that could see prices climb 20¢ to 30¢ a pound by 2013 or 2014," CattleFax analysts say. By then, we could be looking at the smallest calf crop in the U.S. since 1950, they project.

As for fed steer prices, they expect prices to average $86 to $88 per hundred in 2010, with tops in the mid-$90s. That's up from an average of $83.50 last year.

CattleFax told producers that excess feedlot capacity chasing a smaller supply of calves will continue to squeeze feedlot margins. Cow-calf and stocker operations will be the beneficiaries.

USDA charts showed to producers at the Cattle Industry Convention illustrate the sobering facts about the last 25 years in the beef industry. Per capita supply of beef in the U.S. peaked at near 80 pounds in 1985 and 1986. This year, due to population growth and the shrinking beef herd, per capita supply will be under 60 pounds, a 25% retreat in beef production on a per-person basis.

CattleFax projects that the 750-million-pound drop in beef production this year will be offset by a bump up in poultry production of 800 million pounds. Meanwhile, pork will drop 440 million pounds this year, it projects.

Growing demand for beef in export markets should help prices this year. South Korea is the brightest spot, and it could boost overall exports by 8%.

Art Douglas of Creighton University, CattleFax's weather outlook expert, told cattle producers that with the weakening El Niño odds favor a good growing season for the Midwest this year. It may be wet early, then it will dry out to allow crops to be planted timely and to develop normally. CattleFax expects corn to average near $3.75 a bushel this year, with a price range of $3 to $4.50.

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As goes the general economy, so goes the beef economy.

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