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Erratic beef prices

This year has been interesting as well as challenging for beef producers.

Choice beef cutout values took a major plunge (dropping below seasonal average declines during April) and then rallied back sharply, moving well above percentage changes from a year ago. In April, choice beef cutout values dropped over 15% from last year's levels before recovering in early May. Prices then slid a couple of weeks before making a gigantic push upward, recently trading 20% above year-ago values. So what is going on?

First, with corn prices racing higher throughout the months of May and June, due primarily to a number of weather concerns, feedlots and small producers were aggressively marketing cattle in avoidance of feeding high-priced corn. This, in turn, kept the availability of choice cuts minimal. Second, and perhaps just as important, a strong and continued uptrend in energy prices suggested that economic conditions could be worsening for consumers, weakening their buying power. It appears consumer behavior has changed. In what form was this change? It is likely that the high ticket item purchases, such as SUVs, trucks, vacations, etc. may be the first to go. When auto sales were released just over a month ago, orders for trucks and SUVs were down substantially.

Yet, the economy still continues to roll along with a generally low unemployment rate. Therefore, it is likely that consumers are more conservative with their dollars. Yet, these same consumers may be willing to pay more for beef. Backyard grilling as a form of entertainment may have increased.

Another variable that may have contributed to the surge in choice values is simply that this spring's weather was miserable. Most of the country, especially the Midwest, suffered through a rainy and cool weather pattern. Pent up demand for outdoor activities such as backyard grilling was unleashed once warmer and more conducive weather finally arrived.

These theories are debatable, but something pushed the beef prices higher. Most likely, it was a combination of variables. The real question is, can it last? From a historical perspective, it is doubtful. In the near-term, either input prices need to cheapen or livestock slaughter will be on the rise. This implies more availability of meat near-term, but a potential supportive development for prices next year. The real question is, will demand follow higher prices, or will consumers switch from beef to another food substitute? Only time will tell, but if energy prices hold high, it may be less likely that consumers will be willing to spend more dollars on beef, especially toward the end of the fourth quarter where disposable income may be directed toward Christmas items.

If you have questions or comments, contact Bryan Doherty at Top Farmer at 1-800-TOP-FARM ext. 129.

This year has been interesting as well as challenging for beef producers.

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