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This year’s cattle market depends upon economy

In the cattle market, 2009 was another year of turmoil, as the overall economic and financial crisis kept a lid on prices. The economic crisis followed an extended adjustment in the industry caused by the high feed costs that began in late 2006. As if that wasn’t enough to deal with, severe drought continued in central and southern Texas, further cutting into herds.

This new year finds us with an economy that is about 4% smaller than it was a short year and half ago. Unemployment is more than 10%. While there are signs of renewed economic growth, a lot of uncertainty remains. The shock of the economic crisis has caused many consumers to reduce their purchases, including beef. These factors have kept beef and cattle prices from strengthening as supplies have been cut. Total red meat and poultry supplies decreased in 2009, but weak exports of pork contributed to increased domestic supplies and pork consumption that further weakened meat prices. The worst bulge of pork supplies should pass in the first part of this year.

While demand has languished with the economy, the market’s supply side continues to tighten. Beef production in 2009 totaled almost 26 billion pounds, the least since 2005. All cattle numbers declined to 94.5 million head on Jan. 1, 2009, with the fewest beef cows since 1963. Expectations are for the number of cattle to continue to decline in 2010. Beef cow inventory is expected to decline, and there will be fewer dairy cows due to the huge financial losses in that industry in 2009.

Tightening supplies, cyclically, should at least set the stage for higher prices in 2010. Not only will the U.S. have fewer cattle and less beef production, but beef exports are expected to grow in 2010. The U.S. exported about 1.81 billion pounds of beef in 2009, a little less in 2008. The weakening dollar is expected to contribute to export growth in 2010 of about 50 million pounds The combination of less beef production and more exports further tightens up domestic beef supplies for the year.

Steers in the 500- to 600-pound range averaged about $109 in the Southern Plains in 2009. We expect those calves to average $3 to $5 per cwt. more in 2010. Feeder cattle should average about $2 per cwt. more in 2010 than in ’09. Downside risks to this outlook largely consist of feed cost risk. A poor corn crop in 2010, as the year develops, would severely cut into calf and feeder prices. Better demand growth than expected would provide a positive boost to beef, fed cattle and calf prices.

The new year will continue to be a transition to high feed costs and weak demand.

Anderson is with Texas AgriLife Extension, and Peel is with Oklahoma State University.

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

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