News Update
April 28, 2010

Cattle Business Is Back

In a few short months, cattle prices have staged a seemingly miraculous comeback. In December, finished cattle were $80 per hundredweight (cwt.), now they are $100 per cwt. Calves were $1.05 per pound (lb.), now they are over $1.30 per lb.

“Suddenly, owning cattle looks like a stroke of genius,” said Purdue University Extension Economist Chris Hurt.

The reasons for the comeback are clear, Hurt said. The world economy continues to recover, feed prices are lower, red meat supplies are down, exports are strong, and retail beef prices have been low. Now the question is, can it last?

Beef production in the United States so far this year has been down 1%. A somewhat higher rate of slaughter has been more than offset by lower cattle weights. However, Hurt said there are even more important reasons to explain why cattle prices are so strong.

“U.S. and international consumers are feeling more confident, and they are competing for reduced meat supplies around the globe,” Hurt said. “Foreign consumers want more beef from the United States and from other exporting countries.”

In the first two months of 2010, U.S. beef exports were up 24%. At the same time, U.S. beef imports from competitors like Australia, New Zealand, and Brazil were down 23%. The result of modestly smaller U.S. production with such strong exports and reduced imports is that beef supplies per person in the United States during the first quarter were down about 5%. Similar data for pork reveal a 6% reduction.

“Retailers have kept beef prices low in early 2010, and this has kept consumers fighting for reduced beef supplies and assisted in the cattle price surge,” Hurt said.

Retail beef prices in the first quarter averaged $4.23 per lb., which was down 10¢ per lb. from a year earlier. Lower beef prices help to stimulate consumers to buy more beef. Hurt said one of the reasons live-cattle prices are so much stronger is because retailers had not yet moved their retail prices higher.

In the first quarter, as retail prices were down 10¢ per lb., retail margins dropped by 20¢ per lb. “This means that retailers primarily absorbed the higher wholesale beef prices at the expense of their own margins,” Hurt said. “In essence, this creates a period of seemingly strong demand because retail prices do not move up as quickly as wholesale prices.”

According to Hurt, the positive demand benefits of narrow retail margins and lower retail prices will not continue as retailers will be increasing beef prices this spring and summer.

“We can expect to see retail prices move back to record-high levels, which were $4.46 per pound in the third quarter of 2008,” Hurt said. “In fact, it is likely that consumer prices will set new records this summer and fall. Given the weakly recovering economy, consumer demand may not appear so robust this summer with record-high beef prices in grocery stores and restaurants.”

Calf prices have increased about 25% since December as a result of much higher finished cattle prices and lower feed prices. Midwest cash corn prices were near $4 per bushel (bu.) late last fall, but are now below $3.50 per bu. Soybean meal prices have been about $35 per ton cheaper this April compared to last December. Bright production prospects for the 2010 crops have also strengthened the desire to buy calves and feeder cattle.

Most important is the question of whether these strong prices will continue. Hurt said the answer is yes, but not as strong as is being experienced this spring.

“Per capita beef production should be down about 2% to 3% for the rest of the year, but the smallest of those supplies is expected this spring,” Hurt said. “The economic recovery continues to grow momentum in the United States, and that is likely to continue, although unemployment rates will be slow to drop. On the negative side of the ledger, higher retail beef prices will cut into consumption by this summer and fall.”

According to Hurt, finished cattle prices are expected to be at their yearly highs this spring. Summer prices are expected to be in the low- to mid-$90s, with fall prices moving back upward several dollars. For 2010, prices may average about $93, dramatically above the $83 of 2009. Prospects for 2011 should remain strong as well, perhaps moving close to $95 for the year.

“More cattle will move into feedlots given the strong prospects for finished cattle prices and moderate feed prices,” Hurt said. “If the 2010 crops develop normally, calf prices should be 20% to 25% above last year’s levels.”

Steer calves averaged about $1.05 per lb. in the eastern Corn Belt in the fall of 2009. This means they could average $1.25 to $1.35 per lb. this fall. While these are the strongest prices since the fall of 2005, they still may not be high enough to encourage cow-calf producers to expand given the much higher costs of production today.

Hurt said it’s great to be able to say the cattle industry is back.

— Release by Purdue University Extension.

Illinois Angus Breeder Nominated for Monsanto’s ‘Mom of the Year’

Farm mothers have to be versatile. They have to be nurturing, smart, hard-working and tough. Central Illinois Angus breeder Cheryl Day is all of these and then some — at least according to her 12-year-old daughter, Sierra.

Sierra nominated her mother for Monsanto’s “2010 America’s Farmers Mom of the Year” contest. The annual contest honors selected farm moms for their contributions to their families, farms and ranches, and to their communities.

Cheryl is among five regional finalists selected by a panel and vying for the national title, to be determined by online votes at www.monsanto.com/americasfarmers/moms. Voting ends May 3, and the winner will be announced May 4. Read more.

NFU President Travels to Brazil, Sees Efforts in Stopping Deforestation Firsthand

National Farmers Union (NFU) President Roger Johnson recently traveled to Brazil with representatives from the American Farmland Trust; American Soybean Association; and Mead Westvaco with The Nature Conservancy climate change experts to see firsthand the environmental damage of deforestation in the Amazon.

The group met with local farmers, ranchers and government officials in Paragominas and São Félix do Xingu to talk about the causes of deforestation and how improved land use will not only protect forests but also benefit local and U.S. farmers and ranchers.

“The people we met with embraced the idea of sustainable forests and ceasing deforestation,” Johnson said. “There is a lot of work to be done to reverse the damages caused by reckless activities prior to the recent reversal of deforestation policy, but they are making progress.”

While U.S. farmers and foresters are facing unfair competition from cheap products produced from illegally cleared forests, Brazilian municipalities with high rates of deforestation face commercial embargoes and credit restrictions for rural farmers. Brazilian farmers are also eager to tap into the growing market for legal and sustainable goods. The Nature Conservancy is currently working with farmers, ranchers and government agencies in Brazil to improve land management, stop illegal clearing of forests and reduce carbon dioxide emissions from deforestation.

— Release by NFU.

Rail Company Testing Biodiesel Made From Beef Tallow

Amtrak and the Oklahoma and Texas state transportation departments are cooperating on the nation’s first-ever test of biodiesel containing beef byproducts to power a passenger train. The biodiesel blend, consisting of 80% conventional diesel and 20% biofuel, will be used in the Heartland Flyer train operated by Amtrak. Previous locomotive engine studies have shown using the B20 blend reduced hydrocarbon and carbon monoxide each by 10%, cut particulates by 15% and lowered sulfate emissions by 20%.

Beef tallow will be the primary raw material in the experimental biofuel. The byproduct is readily available and relatively inexpensive compared to plant oils.

The trial is part of a $274,000 grant Amtrak received from the Federal Railroad Administration to continue research of the cleaner, renewable fuel.

A more detailed report will be available in the May 20 Angus Beef Bulletin EXTRA. Click here to sign up.

— Release by Kansas Livestock Association.

— Compiled by Mathew Elliott, assistant editor, Angus Productions Inc.