Though historically snug cattle supplies increase risk to the future profit potential of the U.S. cattle and beef business, they’re keeping prices elevated and should continue to do so for at least the next couple of years.

“After years of tightening supplies, the cow-calf sector will again remain in the driver’s seat during 2014,” said Kevin Good, CattleFax senior market analyst, at this week’s annual CattleFax Outlook seminar.

In this week’s In The Cattle Markets, John D. Anderson, deputy chief economist at American Farm Bureau Federation, notes that last year was the eighth consecutive year of declining beef cow numbers.

“In fact, beef cow inventories have been down in all but two years since 1996-2005 (up 0.4%) and 2006 (up 0.1%),” Anderson explains. “But perhaps the most notable thing about the inventory report was that the beef cow inventory, though down, was down by quite a bit less than expected. Pre-report estimates generally anticipated about a 1.5% decline in beef cow inventory. In that context, the actual decline was pretty small, suggesting that by late last year, producers were indeed beginning the process of herd rebuilding. Low rates of beef cow slaughter in the last quarter of 2013 are consistent with this story as well.”

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According to Good, the combination of improved moisture conditions resulting in lower input costs, and record-high calf values, should lead to beef cowherd expansion beginning in 2014.

In the meantime, Good says that CattleFax expects the per-capita beef supply to decline 4.5% this year. He adds that pork and poultry supplies are expected to increase, leaving total meat supplies near even. CattleFax projects the Retail Beef Demand Index will improve by 1% due to continued modest economic growth.

According to CattleFax, prices for fed steers are expected to increase 7% this year to an average $135/cwt. compared to $126 during 2013. Yearling prices are expected to increase 13% to an average of $168/cwt. ($146 in 2013). CattleFax projects a 13% increase in calf prices to an average of $193/cwt. compared to last year’s average of $168.

“While herd rebuilding may be in its beginning stages in the beef sector, it will be a slow process given the historically small number that the herd will be rebuilding from,” Anderson says. “In addition, very strong feeder cattle prices are making it quite costly for producers who want to expand to hold replacement heifers.”

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