 "The magnitude of price improvement may be robust at some point
in 2010, as beef cow numbers continue to drop, beef exports
continue to improve, and the world economy begins to heal," said
Chris Hurt. "A return to finished cattle prices of $1 per pound
or higher seems probable, as per capita beef supplies will be
low and competitive meat supplies will drop as well."However,
for the present Hurt noted that as much of the agricultural
sector is taking a big hit from the recessionary economy, the
beef sector is no exception.
"Weak retail demand has lowered finished cattle prices," he
noted. "The magnitude of the hit is hard to measure precisely,
but consider that late last summer the price outlook for the
first quarter of 2009 was for finished steers to average about
$94 per hundredweight.
"As the economy weakened, cattle prices fell and only
averaged $81.50 in the January-to-March quarter. A reduced price
of $12.50 per hundredweight represents a revenue reduction of
$750 million in the first quarter alone."
He added that cattle prices have paralleled the decline, and
the more recent recovery, in the U.S. stock market. Since
September, the Dow Jones Industrial Average index and finished
cattle prices have been nearly 90 percent correlated using
weekly data.
"Of course, the stock market does not determine cattle
prices, but since last September they have both been highly
influenced by macroeconomic conditions that reflect weak
demand," said Hurt.
Hurt stated that supply is not the reason for low cattle
prices. In the first quarter of the year, per capita beef
supplies were down about 3 percent and gave rise last summer to
the anticipation of mid-$90s finished cattle prices in the first
quarter.
"Beef supplies will remain about 3 percent below
previous-year levels into the second quarter of 2009, but will
be up about 2 percent in the third quarter and unchanged in the
final quarter of the year," he said. "A smaller beef cow herd
and fewer cattle in feedlots have provided generally smaller
beef supplies."
Another concern for the cattle industry is that retail beef
prices have been slower to drop than have producer prices.
[to top of second column] |
As an example, in the first quarter of 2009, retail beef prices
averaged $4.33 per pound, compared with $4.16 a year earlier. In
contrast, Nebraska finished steer prices were about $81.50 in the
first quarter this year, compared with $89.60 a year earlier.
"So while live cattle prices were down $8.10 per hundredweight,
consumers had to pay 17 cents per pound more for beef," said Hurt.
"This means beef processing margins increased, with the largest
portion coming in retailer margins, which were 13 percent higher
than in early 2008."
The pattern of farm-level prices changing more rapidly than
retail prices is normal, and there are signs that retail prices and
margins are on the decline. Retail beef prices peaked at $4.53 per
pound last August and fell to $4.30 in March.
"Retail margins have also been narrowing in recent months," he
said. "These are both indicators that retail beef prices can
moderate further and enable producers to receive a larger portion of
the consumer beef expenditures in coming months.
"The direction of the general economy, however, remains the key
variable for the direction of finished cattle prices for the rest of
this year and next. Feeder cattle and calf prices will also be
influenced by the direction of feed prices and by pasture
availability."
While the beef production sector has suffered one of the most
dramatic negative impacts from the general economy, it also has the
potential to have one of the most dramatic positive responses when
the world returns to economic normality, he noted.
"The question, as always in markets, is, When will the turn to
higher prices get convincingly under way?" said Hurt.
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences] |
