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Beef prices rise as supplies decline

By Jennifer Carrico

MARKETS—University of Missouri agricultural economics professor Ron Plain, discussed the status of the cattle market at the joint meeting fo the Iowa Cattlemen's Convention and Cornbelt Cow-calf Conference in Ottumwa, recently. (Journal photo by Jennifer Carrico.)

Beef producers are experiencing rising prices, but the beef supply continues to decline, according to University of Missouri professor of agricultural economics Ron Plain.

Plain gave cattle producers an update on the cattle market during the joint meeting of the Iowa Cattlemen's Convention and the Cornbelt Cow-calf Conference held in Ottumwa recently.

"The USDA's semi-annual cattle inventory report for January 2011 revealed a continuation in the herd reduction which bean in 2007," he said. "This was expected given that cull cow slaughter was 4.8 percent higher during 2010 than in 2009." High cattle prices in 2010 helped cattle producers, but high feed prices and the weak U.S. economy had a negative impact on cow-calf producers.

"Corn prices are $1.20 higher than ever before. The 2010 corn yields were down from 2009, but the crop was still the third largest ever," said Plain.

"However, other usage for the corn is up tremendously. In 2000, ethanol use was 1 percent of the crop. In 2010, ethanol use was 40 percent of the crop." Plain said the futures prices are higher than ever for corn, with some December contracts above $5.15 per bushel, which puts even more pressure on cattle producers.

Fed cattle prices averaged $95 per hundredweight to set a record in 2010, which was up $12.30 compared to the year before and up $2.75 from the previous record set in 2008.

Feeder cattle prices were close to a record high last year as well, with 750- to 800-pound steers averaging the second highest ever at $108.71 per hundredweight and the lighter 500- to 550-pound steers averaging the third highest average at $124.54 per hundredweight.

"Many people wonder why there are record prices for fed cattle in 2010 and not for feeder cattle," he said. "That would be mostly due to the high corn prices. High cost of gain kept cattle feeders from bidding up 2010 feeder cattle prices to match fed cattle prices." Plain doesn't expect the 2010 record to hold very long as the futures market is predicting new records for this year.

"In late January, every futures contract for slaughter steers was trading above $107 per hundredweight and every feeder cattle contract was over $125 per hundredweight," he said.

The optimism in the futures market is due to the continuing growing U.S. and world population. The population is growing, but the meat supply is not. The U.S. per capita meat supply is expected to be down 1.2 percent this year with beef down 2.7 percent.

"At 58.1 pounds per person, the beef supply is expected to be down for the fifth consecutive year to the lowest level since 1952. It's not that people don't want to eat it‹it's just that they can't afford it," he said.

The fed cattle demand is better because the export demand for beef is growing. While the lower cost cuts do better in the U.S., export demands to certain parts of the world are still strong for the higher value cuts.

Currently, select cutout values are higher than choice because people are buying the cheaper cuts and fewer are going out to eat to purchase the choice cuts.

Plain said the last couple years' high energy prices resulting in the recession had an effect on retail beef prices. "The latest recession is the worst since the Great Depression. The housing market is a key in the recession and sales of new homes have not increased, and that has also affected meat markets," he said.

The total per person supply of red meat and poultry this year is expected to be the lowest since 1997. The total number of cattle and calves in the U.S. on Jan. 1 was 92.6 million head, down 1.4 percent from 2010 and 4.1 percent lower than the last cyclical peak in 2007. This is the lowest January cattle inventory since 1958.

The 2010 calf crop is estimated to be 35.7 million head, down by 0.7 percent from the year earlier numbers and the smallest calf crop since 1950. The size of the calf crop has declined each year since 1995, according to Plain.

The inventory report for the cowherd shows that the number of beef cows that have calved was 30.9 million head, down 1.6 percent from the same time last year. The number of dairy cows that have calved is 9.1 million head, which is up 0.7 percent from a year ago. The combined cowherd is 1.1 percent smaller than in January 2010.

Replacement heifer retention has been down in order to meet more of the fed cattle needs. As of Jan. 1, there were 5.2 million beef heifers being held to add to the cowherd, 5.4 percent fewer than January 2010. The number of beef heifers expected to calve in 2011 was down 7.2 percent. The number of dairy heifers expected to calve this year is up 2.9 percent.

"The combined number of replacement heifers is down 2.6 percent from a year ago. When added to the inventory of cows that have calved, the data implies the 2011 calf crop should be roughly 1.3 percent smaller than last year's crop," said Plain.

During 2011, slaughter numbers are expected to be slightly lower than a year ago. The number of cattle on feed on Jan. 1 was up 2.8 percent in total, with the number of cattle on feed in feedlots with a one-time capacity of 1,000 head or more up 4.6 percent. Slaughter of cull dairy cows is expected to increase in 2011, while a modest decline in beef cow slaughter is expected.

Cattle on feed on Feb. 1 was up 5.6 percent, but Plain warns that placements will drop off at some point because there aren't any more calves available than the previous year.

Prices for the last week of February for slaughter steers were also at an all-time high of $111 per hundredweight. Exports continue to help prices, with more beef being exported than imported for the first time since 1957. Exports are expected to increase to Mexico, Canada, South Korea and Japan and other countries as trade agreements are made. Plain expects fed cattle prices to continue to be positive throughout the rest of the year with an average of $104 to $108 per hundredweight with a high seen in the fourth quarter.

"Even with the decreasing cowherd, we continue to see that production per cow gradually moves up," he said. "However, there continue to be uncertainties which effect the market, including the world economy, exchange rates and exports, feed costs and government policies concerning biofuels, GIPSA and animal rights.

"We should see record high prices, but it continues to depend on how well people are doing economically and what they are willing to pay for." Jennifer Carrico can be reached by phone at 515-833-2120, or by e-mail at jcarrico@hpj.com.

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