High cattle prices this year aren't all that surprising, but the lofty heights of new price records certainly are, says Purdue University Extension economist Chris Hurt.
One record, posted by Nebraska steers, shows an average of $147 per live hundredweight – more than $20 higher than the previous first-quarter record price. In percentage terms, finished cattle prices in the first quarter this year were up 17% and production was down only 4%.
"It is easy to list some possible causes, but none of them seem to be large enough to have caused such startlingly high prices," Hurt said. "We start with the fact that meat and poultry supplies all were low. We have mentioned that the 4% reduced beef production and broiler egg hatchability has been low, reducing chicken supplies below expectations," Hurt explained.
The PED virus in hogs may have been the real kicker, primarily because the pork market seems to have sharply overshot prices due to the uncertainty of the actual death loss from the disease, Hurt said. There were also arguments that "maybe" demand was very strong, but first-quarter GDP growth of only 0.1% seems to discredit this argument. Data on trade are positive, but not enough to explain such high prices.
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"Much like pork, we are left with an incomplete understanding of why cattle prices were so high, especially in March and April," Hurt continued. "As in the pork sector, this may mean that cattle prices were 'caught up' in the fear of very short meat and poultry supplies and may have become overpriced."
Hurt said that this may be another example of the old market adage of "buy the rumor and sell the fact."
Record prices impact consumers, too
Record beef prices for consumers have also become a reality, Hurt said. In 2013, retail beef prices averaged $5.29 per pound but moved to a record $5.55 in the first quarter of 2014. Retail beef prices in 2014 are now expected to average $5.67 per pound, an increase of 7% over last year.
Related: Cattle Prices Cause Beef Price Increase At Grocery Store
"Current live-cattle futures markets are taking a more moderate approach to prices for the rest of the year now that the highs of the year are likely behind us," Hurt said. "Prices of finished cattle are expected to move downward to the mid-to lower $140s in May and June. Prices are expected to dip more in the third quarter with an average in the $135 to $139 range, and then recover into the low to mid-$140s for the last quarter average. Prices in 2013 averaged $126, and this year's new record is expected to be near $142," he said.