Tim Petry
In the Cattle Market
Supply and demand support cattle prices.
All market classes of cattle have rebounded nicely over last year's depressed levels. Fed-cattle and cow prices are leading the way at almost 20% above last year followed by feeder cattle and calves showing 10%-15% gains. One or both of two things had to happen for cattle prices to move higher. Demand for beef had to increase and/or beef supplies had to decrease. Both have happened in 2010.
Since about half of the beef consumed in the U.S. is eaten away from home, strong beef demand is dependent on the restaurant trade. For the first time in almost three years, the March 2010 National Restaurant Performance index, an industry barometer of foodservice business, rose above 100, signaling expansion. This welcome return of restaurant business has been supportive to wholesale beef and fed-cattle markets.
On the beef-at-home front, after a harsher-than-normal winter in several regions of the country, consumers have anxiously kicked off the grilling season. Retail purchases seem to be anticipating a strong Memorial Day, Father's Day and July 4 demand. Ground beef sales have been particularly strong and have buoyed the cow market. Wholesale fresh, 90% lean, boneless beef prices are more than $20 per hundredweight (cwt.) higher than last year at this time. Lower pork supplies and sharply higher hog prices are also stimulating beef demand.
International trade has been an important player in the cattle price rally. So far this year, beef exports are up 24% and imports are down 23%. Chuck and round primals that produce much of the beef demanded in the export market have increased more than 20% in value. The U.S. Meat Export Federation (USMEF) has indicated that short ribs, a preferred cut in key Southeast Asian markets, have increased more than 50% in value and are adding as much as $15 per head to fed-cattle prices. Russia has also shown a strong interest in U.S. beef this year.
Imports of grinding beef have been off almost 25% in 2010. Imports from our leading suppliers (Australia, New Zealand and Uruguay) are off by double-digit amounts. The decline in value of the U.S. dollar relative to those countries where we get beef has made our market less attractive and other markets more lucrative. That is particularly the case for Uruguay.
Hide and offal values have also soared from last year's very depressed levels with the return of export business. The byproduct value (live steer basis) has climbed to near $11 per cwt. from last year's low near $6. Prices of hides and inedible and edible tallow have nearly doubled with the return of worldwide leather demand and an increase in energy prices.
Feeder-cattle prices have been positively affected by higher fed-cattle prices, the best pasture and range conditions in more than 10 years, and moderating corn prices.
U.S. beef supplies have been declining as beef cow herd liquidation has taken place. Beef production was down more than 2% in 2009 and is expected to decline about 1½% in 2010. Cattle-on-feed numbers were lower than the previous year in 10 out of 12 months in 2009, and each month so far in 2010. Lower carcass weights in 2010 are also supporting prices.
So, market fundamentals still do drive prices. But keep in mind that world economic conditions are volatile. Even though prices have increased and current fundamentals are positive, price risk management should be considered in marketing plans.