May 9, 2013
WEST LAFAYETTE, Ind. - Although finished-cattle prices that were expected to increase this year for producers remained low in the first quarter, Purdue Extension agricultural economist Chris Hurt said increases could be on the horizon.
Hurt said he earlier had thought that beef production would decline by 3 percent for the first half of the year and that cattle prices would be in the $130s by now, but that hasn't happened.
"So far this year, beef supplies have been down close to 1 percent," he said. "That means more beef than we expected, and more beef is certainly one of the contributors to lower cattle prices."
More supply isn't the only component of the lower-than-expected beef prices. Additional contributors include a weaker U.S. economy, reduced pork and chicken exports and high retail beef prices.
Listen to Chris Hurt discuss the cattle outlook.
"The weak U.S. economy has many consumers shopping for value and beef has had higher retail price increases as compared with competitive animal proteins," Hurt said. "As an example, retail choice beef prices have been at record-high levels this year, reaching $5.30 per retail pound in the month of March."
Over the past six months, beef prices have risen 6 percent more than pork prices, 10 percent more than turkey, 4 percent more than chicken and 7 percent more than eggs.
Higher beef prices for consumers, coupled with lower animal exports - pork exports were down by 14 percent in the first two months and chicken exports by 3 percent - have created more competition in the domestic market for beef.
Hurt said continued small supplies of beef for the rest of the year suggests a brighter future for cattle prices.
"Last-quarter supplies could drop by 6 to 7 percent, with prices rising into the low $130s," he said. "First-quarter prices for next year should improve a few dollars toward the low- to mid-$130s. These forecasts are all higher than current futures prices."
If crop yields are closer to normal this year and corn is about $5 a bushel by harvest, those much lower feed prices will stimulate expansion of all animal species.
Hurt said with lower feed prices and improved pasture conditions, cattle producers are expected to retain more heifers. These early stages of herd expansion will draw the beef supply down even more and lead to higher cattle prices.
"This all suggests better days ahead for both finished cattle and calf prices," he said.