Economy weighing in on beef cattle markets

It's a mixed bag when trying to predict the future of the calf and feeder cattle markets, but there may be some good news heading into 2009, according to a Texas AgriLife Extension Service economist.

"We may see (cattle) prices better than 2008 simply because of where we are in supplies," said Dr. David Anderson, who spoke recently at the 37th Annual South Central Texas Cow-Calf Clinic.

A continued reduction in beef cattle numbers due to dry weather and higher input costs could cause prices to edge higher in 2009, according to Anderson.

For the short term, recent price swings in cattle futures and even auction markets across the state have been a direct result of a declining stock market. These factors have lowered prices paid in the calf and feeder markets, Anderson said.

"If we go into a deep recession, we could see some more pullback," he said. "People are eating out less and grocery store spending is going up. We're seeing that more people are doing more home cooking."

Stocker cattle operators are using caution as wheat pastures continue to emerge this fall.

"They're very cautious right now," Anderson said. "It's a wait-and-see approach with the current financial state of the economy."

The livestock industry is currently in a "cost-price squeeze," Anderson said. Production inputs, which include everything from feed to fuel, are higher than in years past and those costs are incurred throughout the beef-production chain.

"Even though corn (futures) have moved under $4 a bushel, and we're seeing some retrenchment in feed costs, these are still very high feed costs," Anderson said. "And we can't rule out the speculative fund activity which has affected commodity prices. That's having an effect on the cattle market."

Anderson said there's a current tug-of-war going on in the calf market. Tighter supplies are keeping prices higher for calves, but there's also the high cost of feed.

"(With) the state of the economy, calf prices in the spring may be below what we saw this year," he said. "We still had fairly high prices during the first part of this year. However, I think we will see higher calf prices during the second quarter of next year. What we may see at the end of 2009 may be higher than now due to tighter calf supplies."

Right now, there's incentive to market heavier calves to help feeder operators offset high feed costs.

"If you have grass and a way to hang onto to those calves, there's an opportunity there to make more money by holding onto them into next year," he said. For the feeder cattle market, Anderson said he also expects to see prices better than 2008 due to reduced supplies.

"And there's still good demand for beef," he said, "If prices stay in the 90s (per hundred weight), that's still better than where we were in the first quarter of 2008."

Spring 2009 predictions, according to Anderson, could result in 500-600-pound steers averaging $1.05 a pound for No. 1 steers.

Due to declines in wheat prices, Anderson said, there may be more incentive to have stocker cattle graze those pastures and cash in on the weight gain. Weather will play a big factor in that determining that outcome, he said.

Editor's Note: The following can be used in a breakout graphic:

--Once the presidential transition is completed and the U.S. economy has a chance to build some momentum after the multi-billion dollar rescue package, the beef markets could react positively in 2009.

--Continued year-over-year increases in cow slaughter will restrain imports, but the stronger dollar will mitigate that effect, said Dr. David Anderson, Texas AgriLife Extension Service livestock economist. Increased cow slaughter can't go on forever before higher prices spur herd retention and increase imports to make up the difference, according to Anderson. If the weakening economy moves consumers to eat more ground beef instead of other cuts, then imports may increase also.

--If a combination of herd retention and increases in cow slaughter continue, it's likely strong exports will occur in 2009 and result in higher beef prices.

Source: David Anderson, Texas AgriLife Extension Service.

12/15/08
5 Star OK\21-B

Date: 12/11/08

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