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"The opportunities for the cattle
industry are the opening of trade with Mexico and movement toward
restoration of the Asian market," said Chris Hurt. "Regardless, U.S.
beef supplies are going to remain limited and prices are going to be
strong. Finished cattle prices could average in the low $80s for the
year and be the second-highest price ever, after last year's average
near $85."
Hurt's comments came as he reviewed the
cattle market in light of recent developments. Cattle-on-feed
numbers on April 1 dropped to unchanged from year-earlier levels
after having been up by 4 percent or 5 percent since last November.
The reduction was a result of aggressive marketings, up 9 percent in
March, and a small level of placements, down 11 percent for the
month.
"The decline in placements appears to
be related to continued lack of feeder cattle supplies and rising
feed prices," said Hurt. "The price of 750- to 800-pound feeder
steers at Oklahoma City was up 12 percent in the first quarter of
the year compared to a year earlier.
"In March, increases were accelerating,
as prices reached 90 cents per pound, 18 percent higher than the
previous March."
Feed price increases are also
well-documented, with corn prices in central Illinois and Indiana
reaching about $2.90 per bushel in March compared with about $2.40
in December. Meal prices in central Illinois increased from about
$230 per ton in December to over $300 in March.
"If feed prices remain high, low
placements can be expected to continue in the spring and summer,
with on-feed numbers dropping to as low as 90 percent of last year's
level," said Hurt. "This will help ration the short supply of corn
and protein."
So far this year, Hurt noted, smaller
domestic beef supplies are about equal to the loss of beef exports
from mad cow disease. Beef supplies in the first quarter of the year
were surprisingly small at just 5.9 billion pounds, a 7 percent
reduction from the first quarter of 2003. This was just about evenly
offset by the loss of exports, which represented a decline of 9
percent of production.
"Domestic beef demand appears to be the
explanation for higher cattle prices in the first quarter of this
year compared to year-earlier prices," said Hurt. "Nebraska 1,100-
to 1,300-pound choice steers averaged about $82 in the first quarter
compared to $78 in the previous year.
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"The two components of the strong
demand for beef are the popular high-protein diets and personal
income growth that has been near a 5 percent inflation-adjusted
rate. Demand is expected to remain strong throughout the year."
Hurt predicted beef supplies will be
limited this spring and summer, and now, declining placements imply
smaller numbers coming from feedlots this fall. Trade issues will
also be a factor for supply.
"It appears that an agreement with
Canada will soon be struck to allow live cattle under 30 months of
age into the United States," he said. "While on-feed numbers are
down 21 percent in Canada at this point, prices there are sharply
lower compared to the United States.
"With U.S. finished-cattle prices in
the higher $80s, similar quality cattle in Canada are near $60 per
hundredweight. Opening the border to cattle under 30 months of age
means that these two prices must come close together, with sharp
increases in Canada and modest declines in the United States."
Beef supplies are expected to be down 4
percent to 5 percent in the spring and summer quarters and nearly
unchanged in the last quarter. This means that commercial production
will be near 25 billion pounds, a reduction of approximately 5
percent.
Prices of finished steers are expected
to decline into the spring and summer from their current high $80s.
Prices by the end of the summer are expected to be in the higher
$70s. Fall prices should stage another significant rally, with
prices reaching back into the mid- to higher $80s by the end of the
year.
"Calf prices have been very strong this
spring as 500- to 550-pound steer calves have averaged $111 per
hundredweight at Oklahoma City," said Hurt. "With the limited supply
of calves, high feed prices have not depressed prices.
"Continued
uncertainty surrounding feed prices could make calf prices
vulnerable. However, if normal crops develop this summer, calf
prices are expected to be in the mid-to higher $90s this fall. This
would be about $5 less than bids for calves in the fall of 2003 but
still provide favorable returns for producers."
[University
of Illinois news release]
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