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Cattle market has positives

A weak U.S. dollar has encouraged investment in commodities, resulting in a positive picture for agriculture — including cattle producers.

“With regards to index investments, they [investors] buy these as a hedge against inflation, and when you have investment dollars coming out of the closet, many are putting money into commodities — and that’s good for agriculture,” said Mark Welch, Texas AgriLife Extension Service grain marketing economist, College Station.

A weak dollar allows foreign investors more purchasing power for U.S. products, and this has led to investment opportunities in commodities such as oil, which hit $78 a barrel recently. Index funds also will seek other commodities outside the energy sector, Welch said.

“This will also include agricultural commodities, which can lead to some positive activity for the agricultural industry as a whole,” he noted.

Key Points

• Weak U.S. dollar encourages investment in commodities, including agriculture.

• Higher cattle prices can be expected in 2010 based on supply and demand.

• Corn prices should remain strong as ethanol production returns to profitability.


Declining cattle numbers

Welch spoke at the recent Brock Faulkner Cattlemen’s Clinic in Bryan, Texas, where he said all the investment and trading activity will affect the cattle market. He said along with declining numbers of cattle across the United States, beef producers can likely expect to see higher prices during 2010.

“We’re reducing numbers as a result of drought over the past two years, and that could put us in a very profitable situation in the future,” he noted.

Welch said a lot of cows were slaughtered in both 2008 and 2009.

Herd rebuilding has been slow. Heifer retention rates have been on the decline, down 2.2% in 2009 compared with 2008, and the fewest in more than 30 years. “Were not going to have as big of a production beef plant [number of calves produced] in 2010,” he said.

When the economy increases and supports the demand, Welch expects cattle prices to increase during 2010, and especially going into 2011.

Grain demand could jump

The demand for grain could increase substantially in the coming months, Welch said. This will coincide with an economic turnaround and increased demand for energy.

More than 4 billion bushels of corn are being used for ethanol, and growth is expected to approach 5 billion bushels.

He said the nation’s latest corn crop is projected to be the second-largest on record. Nevertheless, carryover stocks are going down as a result of the demand for corn from ethanol producers returning to profitability.

“What does that mean if we have a disruption in the corn supply?” Welch asked. “We’re riding a razor’s edge between supply and demand reflected in the current price volatility.”

He said fertilizer prices may play a major role in how many corn acres are planted in 2010.

In April 2009, the national price for anhydrous ammonia averaged $680 a ton. Welch predicts $430 a ton for 2010, the cheapest fertilizer since 2005.

“Those are the kinds of prices we need to encourage lots of corn production,” he said.

To receive Welch’s grain market reports, e-mail jmwelch@
ag.tamu.edu
.

Fannin is with Texas A&M Agriculture Communications, College Station.

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TIGHT SUPPLY: Declining cattle numbers and strong demand for beef, especially if coupled with economic recovery, should mean higher prices for beef in 2010, and especially into 2011.

This article published in the February, 2010 edition of THE FARMER-STOCKMAN.

All rights reserved. Copyright Farm Progress Cos. 2010.