It’s tough to love blizzards, but at
least this winter’s lambasting has helped push beef prices
higher.
Analysts with the CME Group Daily Livestock Report (DLR) noted
in February that steer weights (reported by USDA with a two-week
lag) were 1.9% lower (16 lbs.) than the same time a year ago;
heifer weights were 1% (8 lbs.) lighter. Fed cattle and cow
carcass weights are also down.
“Keep in mind that current weight
declines are the equivalent of 15,000 fewer cattle coming to
slaughter each week and thus will compound the impact of already
light slaughter levels,” explained the DLR analysts. They added,
“It is also possible that other factors are negatively affecting
cattle weights. There have been numerous reports of the current
corn crop suffering from excessive mold levels, a result of high
moisture content as the crop was pulled from the field.”
Plus, even with anemic domestic consumer demand, it seems that
supply fundamentals are becoming more predominant.
January’s Cattle on Feed inventory
was the lowest for January since 2003. Year-to-year cattle on
feed numbers were down 19 of the last 21 months.
These supplies will grow snugger as
producers continue to liquidate cows on a net basis. As of
January 1, USDA reports the total cattle inventory at 93.7
million head, which is 1% less than a year earlier. At 31.4
million head, the estimated beef cow inventory is also down 1%.
“On a nationwide basis, 29 states reported a decline in beef cow
numbers compared to a year ago,” say analysts with the Livestock
Marketing Information Center (LMIC). “The report indicated that
beef cow numbers are still in a modest contraction phase as the
number of heifers held for replacement purposes was 2% smaller
than a year ago.”
CattleFax analysts noted at their
Annual Market Outlook, held in conjunction with the annual
meeting of the National Cattlemen’s Beef Association (NCBA) that
the worst calf prices in the cycle came in marketing year
2008-09; they should increase through 2014 (see Table 1).
Corn prices have helped support cattle prices, too. The February
World Agricultral Supply and Demand Estimates narrowed the
projected price range for this year by a nickel on both ends to
$3.45-$3.95/bu.
Demand will continue to be the
overriding factor in next year. According to Randy Blach,
CattleFax Executive Vice President, “If we would have had the
same beef demand for 2009 that we had for 2008, fed cattle
prices would have averaged $93/cwt., instead of $83.”
Longer Term Higher Prices—Margins Still Thin
Look further down the road and there are hopeful signs for
global economic recovery, as well as further strengthening of
U.S. agricultural prices. But even in a best-case scenario, the
next 10 years will likely be a period of adjustment for American
cattle producers.
At least that’s the picture painted
by USDA’s Agricultural Projections to 2019, published the middle
of February. The annual document presents its assumption for the
projections, as well as where it sees demand and prices heading
for various commodities.
“Higher grain prices and reduced
demand push cattle inventories down through the start of 2011
and result in U.S. beef production declines in 2009-12. Beef
production then rises in the remainder of the projection period
as returns improve and herds are rebuilt. The total cattle
inventory drops below 92 million head before expanding to about
94.5 million at the end of the projection period. Rising
slaughter weights also contribute to the moderate expansion of
beef production beyond 2012. Continued high feed costs are
expected to result in stocker cattle remaining on pasture to
heavier weights before entering feedlots,” say the USDA
analysts.
In fact, analysts with the Livestock Marketing Information
Center point out in February, “As expected, USDA reported that
the 3-state (Kansas, Oklahoma and Texas) number of cattle on
small grain pasture was above a year ago. “The number of cattle
grazing small grain pastures in those states was 1.92 million
head, up 300,000 head from 2009’s.”
The USDA folks go one to explain,
“After the price declines seen in the livestock sector in 2009,
largely due to recession-related effects on meat demand, prices
rise over the projection period. A moderate pace of expansion
combined with improving domestic and export demand support
prices in the projections.”
According to the report, “Reduced
demand resulting from the global recession lowered overall U.S.
meat and poultry exports in 2009 by more than 7 percent. After
2009, exports are projected to rise as global economic growth
resumes and the U.S. dollar depreciates. With this growth,
exports account for a growing share of U.S. meat use, although
the domestic market remains the dominant source of overall meat
demand.”
It’s this necessity for
international trade that also speaks to an apparent problem U.S.
policy makers are having with the working their way through the
Great Recession. At this year’s NCBA Cattlemen’s College, Greg
Dowd, NCBA Chief Economist noted that the world can no longer be
characterized as a one-nation economy. Though still a major
player, the U.S. is now part of the globe’s multi-nation
economy. As such, policies that worked in the old environment
are likely to be less effective in the new one, at best.
Toss in global finances such as the
value of the dollar and interest rates and things get complex.
“In the short term, with declining
world economic activity in 2009, overall globaltrade declined
for the first time since 1982 and agricultural trade fell as
well. However, implications are more long-lasting, shaping
macroeconomic prospects in the world for the next decade and
beyond,” explain the USDA analysts. “Within these adjustments, a
continuing weak U.S. dollar is needed for the U.S. trade deficit
to further decline. In these projections, the value of the U.S.
dollar is assumed to slowly depreciate over the next decade. A
weaker dollar tends to boost exports by lowering the price of
U.S. goods in global markets relative to competing goods priced
in appreciating currencies. Similarly, a weak dollar tends to
dampen imports by raising the price of foreign goods priced in
appreciating currencies relative to U.S. domestic goods.”
A weaker dollar over the long haul
suggests inflation as well as higher commodity input prices than
if the dollar was stronger relative to international currencies.
According to the USDA forecast, the
U.S. dollar depreciated 25% between February 2002 and July 2008,
which helped grow U.S. agricultural exports. Although the dollar
appreciated in real terms in the second half of 2008, it
depreciated through most of 2009.
So, the forecasts suggest cattle
producers will have increasing breathing room to make
adjustments during the next few years, barring some unforeseen
cataclysmic international financial meltdown. However, the
outlook also suggests margins likely won’t be as robust as they
were during the last round of industry good times, and may not
last as long.
Table 1
At its annual Market Outlook seminar—held in conjunction with
the annual convention of the National Cattlemen’s Beef
Association (NCBA), Cattle-Fax analysts offered their price
projections for 2010:
| |
2009 Average |
2010 Average |
2010 Range |
| Fed Steer |
$83.50 |
$86-$88 |
$82-$93 |
Feeder Steer
(750 lbs.) |
$95.50 |
$99-$101 |
$92-106 |
Steer Calf
(550 lbs.) |
$107 |
$111-$113 |
$105-$117 |
Utility
Slaughter Cow |
$47 |
$53-54 |
$47-$59 |
|
