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Cattle market clawing out of the red

Days after USDA released numbers that showed a steeper-than-expected drop in the number of cattle in feedyards around the country, one expert's now saying that sharp drop in numbers will likely turn the market around quicker than most thought earlier this year.

The cattle industry took arguably the biggest hit from this summer's drought, which pushed many producers to demolish herd numbers and send more young or breeding animals to auction much sooner than they normally would. The effect earlier in the year was a landslide in cattle market prices as feed costs sucked the profitability out of cattle feeding.

But things could now be on the rebound, says Purdue University Extension livestock economist Chris Hurt.

"As a result of the slowing placements in the past three months, the number of cattle on-feed dropped to 3% below year-ago levels on October 1. Cattle on-feed will play a role in rationing the short corn supply," Hurt says in a university report. "The current 3% reduction in on-feed numbers contrasts with only a 1% expected reduction in on-feed numbers in USDA's grain consuming animal unit calculations for the 2012/13 marketing year. Cattle on-feed represent 23% of the total USDA grain consuming animal units."

Herd liquidation will still continue into next year, slowly bolstering a market that's seen losses exceeding $200 a head. That will ultimately get the market back in profitable territory, with some prices surging to record levels, Hurt says.

"The cattle on-feed numbers were supportive to the overall expected reduction in per capita beef supplies of about 3% through the first half of 2013. As a result, finished cattle prices are expected to continue to rise this year and into 2013. For the just completed third quarter, steer prices averaged near $120/cwt," he says. "Prices are expected to be near $125 for the final quarter of 2012 and $130 in the first quarter of 2013. Spring prices may peak in the higher $130s with the second quarter average in the mid-$130s. Record-high cattle prices will be in store for 2013 with prices now expected to average in the very low $130s compared to an expected record this year near $122."

The rebound won't be equal across the board, however. Calf prices will continue to lag behind until feed costs start to move lower. How quickly that sector of the market does adjust will depend a lot on how next year's crop yields pan out, both at home and abroad.

"That moderation could begin in a small way with lower soybean meal prices in the spring of 2013, assuming reasonable South American soybean production. Further declines in feed costs could occur with a better grazing season in the spring and summer of 2013 and a return to larger U.S. corn and soybean crops next year," Hurt says. "A more abundant feed supply in the second half of 2013 could result in a robust price recovery for calf and feeder cattle prices. Replenishment of feed supplies would also begin beef cow expansion in late 2013."

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