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Cattle prices rally to tight supplies, consumer demand

As fed cattle prices hit $1 a pound during April, it signaled strength in all facets of the cattle market, as well as improving consumer demand, says a Texas AgriLife Extension Service livestock and food products economist.

“In mid-February, prices were in the low-to-mid 80s, but now our supply situation has sent us back up to $1, and it appears it may be sustained for a little while,” says David Anderson, AgriLife Extension economist, College Station.

He notes a lot of movement on the demand side.

“Part of what we’re seeing is a seasonal increase in prices, but stronger,” Anderson says. “It’s lasting longer than normal.”

Fed cattle prices at $1 per pound, or $100 per cwt., historically “has been a relatively rare event,” he adds.

Anderson says there’s indication that consumer demand is picking up due to the activity in the wholesale market.

“We’re seeing consumers increasing purchases of middle cuts of beef, so we’re seeing a trading up of purchasing,” he says. “I think that’s an indication that consumers may be starting to feel somewhat more comfortable when it comes to grocery purchases, and so far, that seems to be sustaining from what we’re seeing with the wholesale market activity.”

Key Points

• Fed cattle prices reached $1 per pound this spring in April.

• Consumers are increasing purchases of middle cuts of beef.

• Later in 2010, the corn crop will be important to beef market.

Supply side

On the supply side, cattle producers have been reducing cow herds as a result of sharp input increases and the earlier Texas drought, Anderson says.

“Texas especially cut cow numbers due to the drought,” Anderson notes. “What we can expect is to see some producers think about restocking herds, as there is more talk about a rally in the calf market.”

Texas cattle auctions have been on a recent upswing. Anderson says 500-pound to 600-pound steer prices have been as high as $1.20 per pound.

“Higher calf prices encourage people to reinvest in their operations,” he says. “However, we continue to cull cows at a fast clip. Why?

“There’s been so much demand on the consumer side for ground beef purchases that the cull cow market has been very attractive.”

The biggest risk in the current market is the future of calf prices, and prices paid for corn, Anderson notes. If ample rains hit the corn-growing regions of the U.S., corn supplies will be able to fulfill both livestock and ethanol demands.

“We need good timely rains to produce a good crop,” Anderson says. “For several years now, we’ve had good growing conditions. Another thing is we need the economy to continue to recover to keep beef demand going up.”

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

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STRONG MARKET: Cattle prices reflected strength in all facets of the market this spring, rallying to consumer demand and tight cow-herd supplies. Texas cattle auctions have had a strong trade.

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

All rights reserved. Copyright Farm Progress Cos. 2010.