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Can cattle prices finally break higher?

Just a while back, livestock economist Chris Hurt was high on the idea that the cattle market would have a "very bullish year." Now, he's not as optimistic. Why?

There's blame to go around on all sides of the equation. First, supplies haven't gone down as much as some thought they'd need to after last year's drought caused feed costs to spike. That meant there was no relative scarcity of beef supplies to drive up prices.

Add to that a still-sluggish general economy, other meat sectors -- namely chicken and pork -- that continue to fight for export market share, and retail beef prices that aren't sliding as much as competitive products, and it adds up to a cattle market that's having trouble finding traction on the upside, Hurt says. But is that about to change?

"Live cattle futures have responded to the downside this year. June futures, as an example, have fallen $10 per hundredweight from the low $130s at the start of the year to the low $120s today. Will they recover? Continued small beef supplies for the rest of this year suggest they will," Hurt says. "Second- and third-quarter beef supplies are expected to be down 3% and should enable finished steer prices to maintain the mid-$120s. Last-quarter supplies could drop by 6% to 7% with prices rising into the low $130s. First quarter 2014 prices should improve a few dollars toward the low- to mid-$130s. These forecasts are all higher than current futures prices."

While those numbers depend a lot on supply/demand variables outlined above, there's one major variable that will likely override all of them in the coming months.

"If crop yields are closer to normal this year, then much lower feed prices will stimulate expansion of all animal species, assuming corn moves to near $5 a bushel or lower as current markets anticipate by harvest. More normal crop yields imply improved pasture conditions at least in the Southeastern U.S. and the Midwest," Hurt says. "Under these conditions, heifer retention is expected to begin in the fall, at least in areas that have improved pastures and ranges. The magnitude of the expansion will depend on the level of improvement in crop and forage yields and on how low feed prices drop.

"Generally, the early stages of expansion result in the highest prices across the cattle cycle as slaughter supplies are already small and heifer retention pulls down beef supply even more. This all suggests better days ahead for both finished cattle and calf prices," he says.

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