Every market outlook calls for record high prices the next few years. While that’s encouraging, those high prices also raise some questions.
Just about every market summary and outlook you pick up mentions record prices and the prospects for new highs in the next few years. While record high prices are certainly preferable to record low prices for obvious reasons, these new record prices have raised questions.
Rising input prices, drought, ethanol, and several other factors have prevented cow/calf producers from seeing significant benefits from these prices. Perhaps expansion will actually begin this fall and next year. All the signals point that direction, but contrary to what market signals should do, the industry continued to liquidate during the past few years of higher prices.
Feedyards were caught in the middle and went through what was a record period of extended losses; cattle feeders lost money for 29 consecutive months, with the first hints of profitability showing up in just the last couple of months. Reduced supplies are pushing prices higher, but input costs are rising, exposure to risk has gone up dramatically, and infrastructure is being permanently lost.
We are experiencing some relief from the exploding costs of cattle feed and energy, but the structure of those markets dictate that the risk continues to be to the upside and the good old days of $2/gallon diesel and $2.50/bushel corn are gone.
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What’s more, rising cattle prices have fostered some concern by cattlemen over how high retail prices can go before consumers start to push back. Already, beef is being replaced by pork and poultry on some menus as the HRI trade tries to adjust to the higher cost of beef. Demand remains a concern; high quality branded beef programs and exports continue to enjoy growth but the traditional base of our market continues to struggle.
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