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Wednesday, May 4, 2016

Falling Cattle Prices, Where Is the Bottom

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Falling Cattle Prices, Where Is the Bottom
Chris Hurt, Agricultural Economist - Purdue University Extension

The price of cattle has been on a downward spiral for months and ranchers and farmers are wondering when it’ll hit bottom. Todd Gleason has more on the coming prospects for the price of beef.

Cattle prices have had a rough spring…
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Cattle prices have had a rough spring. After peaking in late 2014 and early 2015, prices have been adjusting downward from very lofty peaks writes Purdue University Extension Agricultural Economist Chris Hurt on the FarmDocDaily website. He says this is because back then high prices and the lure of profits caused beef producers to build the national herd.

Hurt :14 …downward price pressure is expected this summer.

Quote Summary - Expanding beef production and a remarkable recovery in total meat supplies continues to put downward pressure on cattle prices. Unfortunately, more downward price pressure is expected this summer.

Beef production, this year, is up three percent. About one percent of that three is from more cattle, the other two comes from heavier market weights. The weights have averaged 1378 pounds in the first four months of the year. This is 26 more pounds than last year and 48 pounds more than two years ago at this same time.

So, more cattle are coming to market and each one of them weighs more, but it’s not the only factor pressuring the price of beef cattle says Hurt.

Hurt :22 …6% more pounds per person, just in the last two years.

Quote Summary - There is also more competition for beef this year as meat supplies recover from 2014 lows. Factually, meat supplies are up by 13 pounds per capita in the United States since 2014. This over 6% more pounds per person, just in the last two years.

With the cash price of finished cattle already in the mid-$120s, the futures market is suggesting declining prices will continue into the summer and beyond. Current futures forecast are for finished cattle prices to average about $122 in the second quarter and then drop toward an average of only $112 in the third quarter and $113 in the final quarter of 2016. These are in sharp contrast to USDA forecasts $20 higher for the final two quarters of the year. Perhaps prices somewhere between these two extremes are most likely thinks the Purdue ag economist.

One thing is clear, cattle prices are adjusting to more moderate levels after the spike of 2014 and early 2015. This adjustment process is of large magnitude and markets have lost their historic benchmarks. For these reasons, there are dramatic differences of opinion about the level of longer-term prices.

Hurt :22 …for finishing 500 to 600 pound calves

Quote Summary - I think this means that cattle finishers need to remain cautious about overpaying for calves. Iowa State University’s calculated cattle feeding losses for closeouts in March 2016 were still estimating losses of nearly $300 per head for finishing calves for finishing 500 to 600 pound calves.

Cow-calf producers need to reconsider their expansion plans says Hurt. With current live cattle futures prices and with feed prices showing signs of some strength, calf prices are less likely to be high enough to provide profitable returns from retention of more heifers. Overall, it appears that the expansion of the beef herd will begin to slow in the second half of this year.