"In the old days, cattle and beef prices were primarily
correlated with beef supplies because demand tended to stay
fairly constant," said Chris Hurt. "Well, the 'good old days'
are over as demand is in the driver's seat today.
producers have been doing what they can by cutting the brood cow
herd and slowly reducing production. The forces of weak demand,
however, are out of their hands as it is now world economic
conditions that have become the dominant, driving force of
Hurt's comments came as he reviewed the state of the cattle
Cutting production is what producers can, and are, doing as
economic incentives have been poor for the past two years, he
noted. In the USDA's latest cattle inventory report, beef cow
numbers were down 2 percent as were beef replacement heifers.
"This means the calf crop will drop in 2009 and probably
again in 2010," he said. "Last year's calf crop was down 2
percent as well, which means somewhat smaller beef supplies this
year than had been anticipated."
Cow-calf producers in the eastern Corn Belt followed the
nation in sending more cows to market. The region had a 4
percent decline in beef cow numbers, with Illinois cow numbers
dropping by 19,000 head and Indiana numbers by 21,000 head. For
the country as a whole, all regions had some decreases, but the
smallest reductions were in the Great Plains region.
"Cattle-on-feed numbers on Jan. 1 were down near 7 percent,
reflecting the continuing struggle of low finished cattle prices
relative to feed and feeder cattle prices," he said. "Both
Illinois and Indiana bucked the national trend by adding 10,000
head on-feed in each state.
"The added numbers heading to feed lots in the eastern Corn
Belt may be related to the large increase in distillers grain
production with the rapid expansion of ethanol capacity in
Why is beef demand being hit so hard relative to other meats
and poultry? Hurt asked.
"The answer seems to lie in the higher price of beef at the
retail counter and in the upscale restaurants that tend to
feature beef," he explained. "Simply said, more consumers are
now substituting lower-priced items for the higher-priced ones.
"Or, another way to say this is that more consumers are
shopping for value as they try to reduce expenditures in their
As a result of this, Nebraska finished-cattle prices averaged
about $82 per hundredweight in January, which was $6 lower than
in January of 2008 and the lowest monthly price since June of
[to top of second column]
"More startling was that these 7 percent lower prices came with beef
production down about 7 percent, reflecting just how weak demand is
with the U.S. recession and world financial crisis," he said. "Calf
prices in January 2009 dropped about $10 per hundredweight, or 8
percent, versus year-earlier levels.
"Over the past year, the positive impacts of lower feed prices
have been more than offset by the lower cattle prices resulting from
Smaller-than-expected cattle inventory numbers from the USDA
report will increase cattle prices in the short run, but more
central to a price turnaround will be the perceived progress of the
general economy, Hurt added.
"On that front, consumers are not likely to feel better about
their budgets for several more months as unemployment continues to
rise into the spring and summer," he said. "Cattle prices should
increase seasonally into the late winter and spring.
"The improvement in the economy is still months away and may well
be in late 2009 and 2010. This leaves the possibility that finished
cattle prices only return to the mid-to-higher $80s this spring,
with mid-$80s this summer. If so, prices might not move back above
$90 until very late in 2009 or early 2010."
Feed prices and other costs will continue to adjust, perhaps
lower in the next six months or so. Prospects for economic recovery
in late 2009 or 2010 and for more rapid inflation in 2010 and later
may help bolster cattle prices at that time.
"The long run looks promising for the cattle industry, but it is
the days immediately coming that will contain the most gloom," Hurt
said. "Needed now are a strong financial position and a long-run
commitment to the cattle industry.
"But for now, and several months to come, cattle producers will
have to live with the economic circumstances they have been given."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental