The cattle industry is ready to set records for high prices this year and next, says Purdue University Extension economist Chris Hurt.

“Although this is positive news for finished-cattle prices, calves and feeder cattle still face the price-depressing burden of high feed costs. In the longer run, current high feed prices will keep the industry in a liquidation phase, and smaller beef supplies in coming years will be positive for returns for years to come,” he says.

“The most recent surge in feed prices will likely keep producers from expanding until feed prices moderate. That will not be until the 2011 U.S. crops are assured, which is still at least 10 months away. This means cow numbers will not likely expand until 2012 and that beef supplies will not start to grow until 2014.”

USDA expects beef exports to expand by 18% this year, with imports falling 5%. More exports and fewer imports means nearly 500 million lbs. of beef won’t be available in the U.S. compared to last year. That represents almost 2% of domestic production and enhances finished cattle prices by $2-$3/cwt., he says.

“It is increasingly encouraging that Asian markets are leading the export volume increases so far this year. Purchases from South Korea are up 130% from last year with Japanese purchases up 21%. China is back in the market as well with an increase of 50% in beef purchases,” Hurt says. Still, annual exports will be only 91% of pre-BSE tonnage in 2003, he adds.

Smaller beef supplies will continue to support high finished cattle prices for the rest of 2010 and all of 2011. Per capita beef supplies in the U.S. will be down about 3% this year and an additional 1-2% in 2011.

“Prices will be supported not only by reduced beef supplies but by strength in the world economy and some recovery in the U.S. economy, which will enhance demand. Recent high feed prices are expected to keep the hog industry from expanding and to cut into the previously expected 3% expansion in chicken production. Smaller supplies of competitive meats support beef prices,” Hurt notes.

Hurt says Nebraska finished steer prices averaged $93.75 in the first three quarters this year, compared to $83.25 in 2009 when recession deflated demand. Assuming the prices in the final quarter of 2010 are about $98, 2010 will have reached a new record price of $94.80, exceeding the previous record high of $92.27 in 2008.

That record price is expected to be broken next year with Nebraska finished steers averaging in the low $100s. Prices are expected to be in the low $100s during the first quarter and then reach yearly highs in the second quarter when they may average about $105, he said.

“Expect prices to drop $2-$4/cwt. in the summer quarter and then finish the final quarter of 2011 in the very low $100s. Price forecasts tend to have large errors so consider a range of at least $3 higher or lower from these forecasts,” he says.

Hurt says the retail beef price so far this year has averaged $4.37/lb., exceeding the previous record of $4.29 for the same period in 2008. Early forecasts of retail prices in 2011 are $4.60 to $4.65, an increase of about 6% over the 2010 record price.

“Although cow-calf producers would have received much higher prices for calves without the recent increase in feed prices, they should hold on to their cow herds because record finished cattle prices and, hopefully, cheaper feed in the fall of 2011 should result in much higher calf prices, perhaps for multiple years to come,” he says.
-- University of Illinois