Cattle Prices Rising With Tight Supply And Strong Demand

Excess capacity at feedlots and packing plants and high fixed costs for those operations means that both will be bidding strongly for the limited cattle numbers.

Published on: Oct 30, 2013

Expectations of tight beef cattle supplies and strong demand are pushing cattle prices higher this fall - a trend that could continue for the foreseeable future. Finished cattle prices hit their summer lows in early August at slightly below $120 per hundredweight, but have climbed back toward $130 in anticipation of small beef supplies in the coming year, says Chris Hurt, a Purdue Extension agricultural economist.

According to Hurt, per capita beef supplies, or the amount of beef available per person in the U.S., likely will be down by about 5 percent for the rest of this year and on into next. High cattle prices combined with low feed prices - corn hit $4.32 per bushel on Oct. 14 - likely means the small number of available calves could be placed on feedlots at lighter weights than a year ago when feed prices were high.

Cattle Prices Rising With Tight Supply And Strong Demand
Cattle Prices Rising With Tight Supply And Strong Demand

"Lower priced feed and the expectations for increasing finished cattle prices over the next four to five months should also encourage feedlot managers to feed to heavier weights," Hurt says.

Low cattle numbers mean feedlots and packing facilities have a lot of unused capacity. Capacity is a fixed cost that doesn't go away with limited cattle supplies.

"The combination of excess capacity and high fixed costs means that both will tend to bid strongly for the limited cattle numbers," Hurt said. "Ultimately, this strong bidding gets back to the brood cow producer in the form of record-high calf and feeder cattle prices.

"Unfortunately, these conditions also mean that the margins for both packers and feedlots, while better than in the past year, will still be narrow and likely less than their total costs."

Strong cattle prices and aggressive bidding by feedlots and packers are likely to lead to a year or more of additional downsizing.

Some cattle producers in areas with healthy pastures could start retaining heifers as early as this fall. But in dry regions, which represent about 45 percent of the brood-cow herd, expansion won't begin until weather becomes more favorable and pastures recover.

"If beef cow numbers begin to slowly turn upward in 2014, downsizing of cattle feeding capacity might end in 2015 and the packing industry by 2016," Hurt said. "The years beyond 2016 should provide some expansion for the beef cattle industry, but still a slow upward growth.

"A slow upward trend is not highly optimistic, but much better than declining trends of recent years."

Hurt offers more commentary on the beef cattle outlook in the Oct. 21 Weekly Outlook on the University of Illinois Extension's Farmdoc website. His article is titled "Cattle Prices Continue to Rise" and it can be downloaded for free.