Timely Topics

Posted by: Doug Waite on Jan 30, 2008

2007 Cattle Market Review & 2008 Forecast

This has been an interesting and challenging year for the cattle industry. Some segments have remained profitable, while other segments have not been profitable. Our nation’s present energy policy, which involves using traditional feed and fuel crops and crop land acres for the production of energy, is having a large impact on the cattle industry. It appears that the days of “cheap” corn are over, which by the way was a product of our nation’s past farm policies. So, while cattle producers may not like the current energy policy, they were certainly benefactors of past farm policy.

Let’s take a quick look at the numbers for 2007 compared to 2006 and I will start with corn. Omaha corn prices for the 2005-06 crop year averaged $2.04 per bushel and the 2006-07 crop year prices averaged $3.46 per bushel. Looking at the corn contracts on the Chicago Board of Trade and adjusting for historical basis, the market would be forecasting Omaha corn prices to average about $4.90 per bushel for the 2007-08 crop year; a more than doubling of corn prices in two years certainly impacts cattle feeding costs and cattle prices.

So, while a major factor of production in the cattle industry has doubled in cost, which would tend to drive down profits, fortunately on the demand side of the market, consumers have continued to eat beef at higher prices. It appears that beef demand in the 2nd and 3rd quarters of 2007 was higher than in 2006. For the year, it is likely that beef demand will be equal to or higher than the previous year. That translated into higher box beef prices in 2007, $149.88 for Choice, compared to 2006, $146.80. I would expect that Choice box beef would sell for over $150 in 2008. However, general concerns about the strength of the U.S. economy need to be considered. If we have no growth in GDP or a mild recession, this could pressure beef prices lower.

Fed cattle price were also higher this past year. Nebraska live cattle prices averaged $92.17 in 2007 compared to $$85.56 in 2007. However, for cattle feeders, those prices were generally not high enough to see positive returns for most of 2007. By my estimate, feedlots in Nebraska probably averaged a negative $15 per head in 2007. That follows losses in 2006 of about -$40 per head. I believe those feedlot loses, coupled with the higher corn prices, were the two main factors in the increased downward pressure that was placed on calf prices this past fall. Looking ahead for 2008, fed cattle prices are likely to trade between $90-100 per cwt. for most of the year. If those prices materialize, that will be record high fed cattle prices for the year.

Feeder cattle prices held together quite well for the year. Prices were lower than a year ago early in the year and then spent most of the year near year ago levels. This fall, prices exceeded 2006 price levels for 750 pound steers. For the year, prices at the Salina, Utah market for 750 pound steers averaged $96.82 compared to $99.31 in 2006. Calf prices were a little softer than last year’s prices for most of the year. The price for 550 pound steers averaged $109.57 compared to $118.09 in 2006. As I look at the Chicago Mercantile Exchange Feeder Cattle futures for 2008 and adjust those prices for basis, I would project that 750 pound steers in Salina, Utah would trade between $90 and $100 for most of the year. Lighter 550 pound steers will likely trade between $105 and $115 during 2008, with prices being at the lower end of that range next fall for the large calf runs.

One thing that occurred this past year and will likely continue to be the case is that the price premiums for calves, relatives to yearlings, was reduced. In fact, there were times this fall when prices for 7 and 8 weight steers was about equal on a per pound basis to prices for 5 weight steers. The higher cost of gain, and the projections of when these cattle would finish had a lot to do with this pricing. For example, an 8-weight steer in October would be expected to finish in March when the fed cattle prices are expected to be relatively strong. However, a 5-weight steer in October would not be expected to finish until June when the fed market is expected to be relatively lower.

As the cattle industry moves into the future, with the new reality of higher feed prices, I think there may be renewed interest in looking at alternative background and stockering programs that can add weight cheaper than can be done in a feedlot. That is the challenge to the industry: to discover these alternative programs. That may also dictate an altering of calving and weaning dates for some of these alternative programs.

Dillon M. Feuz
Utah State University


Add new comment
Please answer the question below: