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We will leave Wall Street speculations to the gods on TV. As for the cattle market, Jim Robb, director of the Livestock Marketing Information Center, is in the business of forecasting what the market may do.

For starters, Robb believes the volatility seen in agricultural markets will continue. He says, “The ups and downs will be more so in the next four years than they have been during the last four years.”

That said, he urges producers to be proactive in following the markets and preparing their operations for the future. “A lot of the cards have already been dealt,” he says. The key is to sort out what those factors mean.

What are the price predictions for 2009?
At present, Robb believes prices for 500-600 weight calves will remain lower for the remainder of 2008 and into the first quarter of 2009.

Robb attributes the weaker calf price mostly to corn prices. He says, “Historically, calf prices are more sensitive to corn prices than fed cattle because calves have to be on feed longer.”
Moreover, the cattle feeding sector has had a difficult two years. Robb reports that at the end of September, the feedlot sector completed 20 consecutive months of losing money. “That has turned them away from bidding up calves this fall. This is a trying time,” Robb says.
Conversely, prices for 700-800 weight feeders should be trending steady to upward through year-end. The slight premium for these heavier calves results from their need to be on corn for fewer number of days to slaughter.

Robb says that fed cattle prices have been somewhat of a surprise this year, and adds that on the point of fed cattle, 2008 was an abnormal year. “The seasonal high was in July – when that is usually the average low,” he reports.

In fact, Robb says fed cattle prices will average about $90/cwt for 2008 – and he expects that to continue. “By 2010 if the U.S. economy rebounds, fed cattle could be over $100/cwt.,” Robb says. He also expects the heavier feeder prices to stay relatively high in 2009, but says calf prices likely won’t bounce back much until 2010.

Where do you project corn prices and what impact will that have on the cattle market?
Robb emphasizes that all of these price predictions are based on the assumption that corn prices will moderate some.

Robb says, “The corn market has come down, but it is still a major uncertainty. As we get into 2009, we still expect volatility in the corn market.” Robb attributes this to the fact that corn will be competing with soybeans for acres to be planted and the feeding industry will be competing with ethanol.

Even so, Robb says projections are for corn to average $4.75/bu. for the next two years. But he adds, “If corn goes back to $6/bu., those projections for cattle prices in 2009 are too high.”

What’s helping drive the cattle prices?
Robb says a bright spot keeping beef prices up is demand, particularly international demand. Specifically, he says, “One of the keys to how prices will behave in 2009 is beef exports.”
To date, demand for U.S. beef exports is on the rise and approaching the levels prior to BSE. “We’ve had a nice gain in beef tonnage being exported, and in 2009, the U.S. could set a record for the dollar value of beef exports,” says Robb.

However, here at home, the weakened economy is causing some hiccups in beef demand. Robb reports that beef sales at U.S. restaurants are down and American consumers are buying more beef at grocery stores instead. But rather than buy steaks, consumers are trading down and buying cheaper cuts like hamburger and chuck roasts.

Likewise, Robb says the consumer demand index shows a decline in beef spending that started in the second quarter of 2008. “We are seeing a decline in demand for beef and how much consumers are willing to pay for it,” says Robb.

This will be important to watch, he emphasizes, as he reiterates that cattle prices for 2009 are impacted by domestic and foreign beef demand.

What’s the status of the U.S. cowherd inventory and how is that impacting prices?
Robb says fewer heifers are being held, and some cowherd liquidation is also occurring due to drought in California and high fertilizer prices in the Southeast.

As a result, the U.S. cowherd inventory is low. That – along with fewer imports – helped bump up cull cow prices this past summer. But it does create some supply issues. Robb reports that in 2009 the U.S. will have the smallest per capita supply of beef in the domestic marketplace since 1959.

This reduced beef inventory is also occurring on the global scale. Robb says the national inventory of cows in Canada, Mexico, South America, Australia, and Europe are all declining. He says, “The cow herd numbers are tightening worldwide more than most people realize.”
Knowing this, Robb believes cull cows will become a valuable commodity in 2009 and beyond. He points out that cull cow prices have dropped for the fall. But he suggests if you have the feed – and can make the economics pencil out – it may be worth feeding culls through the winter. “We will probably see a big bounce back in cull cow prices in March-April 2009,” says Robb.

He adds, “If I had to bet, I think we’ll see $70/cwt on culls in the next few years. This kind of marketplace is going to make the cull cow a valuable animal for the next couple years.”

What’s your advice to producers in ’09?
Looking ahead to the new year, Robb emphasizes that producers need to adapt to the volatility that exists. He says, “Cattle cycles still exist, but they’ve been greatly dampened and will continue to be…There are no textbook situations.”

Speaking to cow-calf producers, Robb adds, “If you sell at the same time every year, that mindset may need to change. The marketplace today is volatile, so you need to have an array of options for when you’ll sell.”

Specifically, Robb says the cattle industry is seeing a change in the seasonal pattern of when cattle are going to market. For instance, he says more calves will be held in 2008 to be sold in 2009 than have been held back for many years.

As a result of these changes, he anticipates prices in 2009 will be weak during the first quarter, better during the second quarter, weakest during the summer (third quarter), and rally in the fourth quarter.

Thus, if you are carrying yearlings over to 2009, he suggests holding them until March, if possible. If you intend to retain ownership, he suggests studying when they’ll go to market in 2009. He anticipates prices will be best during the second and fourth quarters.

As producers look to the future, Robb suggests they think in three month blocks. Here’s why: He says after a shock to the markets, they tend to take 2-6 months to completely settle down. “In about three months, most of the worst is behind you,” says Robb. So, in the current environment if cow-calf operators re-asses every three months and plan ahead, that should keep them one step ahead.”

And Robb concludes, “The shocks are becoming rather normal - whether it comes from corn, the macro environment or something more global.”

The audio of Jim Robb’s full comments are archived online at DVAuction.com under the Leachman Seminars. Click on the Oct. 9 session to listen to his presentation.

A Bonus Question: Will beef see less competition from pork and poultry?
Surprisingly, the answer is yes. Just as the U.S. cowherd inventory has been reduced, LIMC’s Jim Robb reports that the U.S. pork and poultry industries are also seeing a reduction in numbers. So much so that Robb calls the reduction of egg sets among the poultry industry “phenomenal.”

He says by the spring of 2009 the lack of poultry numbers will be evident, and there will be a higher price for boneless, skinless chicken breasts.

As a result of these reductions, Robb believes pressure on the beef segment from pork and chicken will be less than it has been in many years. “The competition with beef is going to be much less at the grocery store and in restaurants,” says Robb.