Continued strength Lower supplies of beef, competing meats and cattle will be supportive to prices in 2013
For the third year (2010-12), prices for all market classes of beef cattle set record annual highs in the U.S. Are record highs possible again in 2013 and even 2014?
The short answer to that is “yes.” However, remember that prices for each market class of cattle have different seasonal patterns, so at times 2013 prices for some market classes (feeder calves in particular) likely will be below last year.
Furthermore, there are many fundamental factors that affect prices and some are unexpected. For example, in 2012, the lean finely textured beef media event; another case of BSE in a U.S. cow; and the worst drought in the Corn Belt since 1988 all surfaced.
Smaller supplies of beef, competing meats and cattle will be supportive to prices in 2013. The U.S. Department of Agriculture is projecting beef production to decline four per cent in 2013 and all red meat and poultry supplies to be down two per cent.
Due to drought in the southern Plains in 2011 and more widespread drought in 2012, the beef cow herd likely will be down one to two per cent in 2013 and result in a correspondingly smaller calf crop.
Besides the smaller calf crop, two additional factors will contribute to lower trending U.S. supplies of feeder and slaughter cattle. There likely will be fewer feeder cattle imports in 2013 (especially from Mexico), and there could be increased retention of heifers and cows for breeding purposes if better moisture conditions in the U.S. return.
Live cattle futures are indicating another record year for fed-cattle prices. Strong hide and offal values and beef export values will be supportive to fed-cattle prices. However, the U.S. economy continues to struggle and will need to improve in 2013 to support fed-cattle prices at the projected futures market price levels.
Cow prices to continue
Cow prices were at a record high throughout 2012 and likely will continue to be at a record high, especially if normal moisture levels prevail and beef cow slaughter declines.
A cyclical buildup in the beef cow herd could cause lower beef cow production for several years. Also, the demand for 90 per cent lean, boneless beef is expected to stay strong because U.S. consumers have a big appetite for hamburger.
Steer calf prices ended 2012 near the previous year’s record levels. However, prices likely will not be as high as last year early in 2013 due to the drought that continues to plague much of the country. Should the drought subside, and spring and early-summer grazing conditions improve significantly, calf prices could challenge last year’s levels by April or May.
Fall 2013 calf prices are dependent on corn prices. A good corn crop and lower corn prices would support calf prices at higher levels. However, another poor corn crop and higher corn prices could cause lower calf prices than what we had the last two years.
Both calf and feeder cattle prices are expected to be volatile in 2013 because of the expectation of continued volatility in corn prices. With good growing conditions, there likely will be enough corn acres planted in 2013 to produce a 15-billion-bushel corn crop, but another drought year could result in an even smaller crop than the 10.8 billion bushels produced in 2012.
That wide range in production potential could lead to corn prices ranging from less than $5 per bushel to more than $9 in the fall. As news of the potential size of the corn crop materializes, prices will adjust accordingly and relatively quickly.
Remember back to mid-June 2012 when November feeder cattle futures prices were $164 per hundredweight (cwt) and December corn futures prices were $5.25 per bushel? One month later, corn futures had climbed to $8 per bushel due to the drought and feeder cattle futures had declined to $140 cwt.
Volatile prices increase the risk but also opportunities, so producers need to have a good marketing plan with risk management strategies in place.