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Ready For More Beef Herd Expansion?

If you're not ready for a higher cattle market for a while, you better settle in and get ready for it, because it's going to continue for "multiple years" into the future, one expert says.

Record beef prices at the consumer meat case persist despite the likelihood that live cattle futures have probably topped for the year, and part of U.S. cattle country is under siege by one of the worst droughts in decades. However, factors like rocketing prices for other protein alternatives brought on by pork and chicken market-specific conditions continues to keep demand riding high for beef cattle, meaning there's plenty underpinning a bullish outlook.

"It is easy to list some possible causes, but none of them seem to be large enough to have caused such startlingly high prices. We start with the fact that meat and poultry supplies all were low. We have mentioned the 4% reduced beef production and that broiler egg hatchability has been low, reducing chicken supplies below expectations. Then it appears that PED virus in hogs may have been the real kicker, primarily because the pork market appears to have sharply overshot prices due to the uncertainty of the actual death loss from the disease. There were also arguments that 'maybe' demand was very strong, but first quarter GDP growth of only 0.1% seems to discredit this argument. Data on trade are positive, but not enough to explain such high prices," says Purdue University Extension livestock economist Chris Hurt. "Much like pork, we are left with an incomplete understanding of why cattle prices were so high, especially in March and April. Like in the pork sector, this may mean that cattle prices were caught up in the fear of very short meat and poultry supplies and may have become overpriced. This may be another example of the old market adage of 'buy the rumor and sell the fact.'"

Drought is still a dire concern in parts of cattle country, but surprisingly, the vast majority of cattle on grass are not in drought-affected areas. So, although it's gobbling up rangeland potential in places like the southwestern Plains, the cattle market likely won't pay much attention to the drought, at least in the next few months.

"Much of the country, but not all, has seen improved pasture conditions. The regions that remain a concern are the southern Plains, the Southwest, and the West. The Drought Monitor from NOAA shows some anticipated drought abatement this summer for the central Plains and eastern Texas," Hurt says in a university report. "If so, this means that only about 15% of the nation's brood cows will be in areas still in drought. Alternatively, about 85% of the beef cows are in regions where pasture and range is sufficient to promote herd expansion."

Altogether, the combination of continued strong consumer demand, a healthy cattle futures market, largely improving rangeland conditions (except in some areas), and cow/heifer numbers comprise reason to be bullish on herd expansion well into the future, Hurt says.

"The USDA's quarterly cattle on feed report suggested that fewer females have headed to the feedlots. On April 1, the number of heifers in feedlots was down 6%, while steers were up 2%. Some producers hold on to heifers to gain the flexibility to either move them to breeding herds or to later decide to sell them to feedlots. Under current economic conditions, the odds favor many being added to the breeding herd," he says. "The expansion of the beef herd is just beginning and will likely extend for multiple years. This means small supplies and strong prices of beef in 2015 and 2016. Beef producers, however, should expect both poultry and pork production to grow rapidly in 2015 and 2016."

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