Cattle prices are on track for record highs in 2011 because of tight animal inventories and strong exports, though expensive grain and consumer resistance to costlier beef pose a growing threat to the industry’s profits, U.S. Department of Agriculture livestock analyst Shayle Shagam said.
Slaughter-ready steers in the major U.S. Plains cattle markets probably will average $102 to $109 per hundred pounds this year, up from $95.38 last year, Shagam said during a Feb. 25 address at the USDA’s annual Agricultural Outlook Forum in Arlington, Va.
“Tight cattle supplies and strengthening export demand led to double-digit increases in prices during much of 2010, and declines in fed cattle supplies during the coming year are expected to underpin further gains in prices,” Shagam said. Click here for Shagam’s full address.
The nation’s cattle numbers shrank the past three years as feed costs rose and the recession hurt beef demand, prompting beef producers to trim herds. As of Jan. 1, inventories of all cattle and calves totaled 92.6 million head, the smallest herd since 1958, the USDA said in a report last month.
While average retail beef prices rose about 3 percent last year, wholesale-retail margins declined, implying that supermarkets didn’t fully pass along price increases on to consumers, Shagam said. He expects retail prices to climb further this year.
“It is of concern as to how far retail (beef) prices can be raised before consumers shift to other meats,” Shagam said. “If there is resistance to higher retail prices, it may slow gains in wholesale beef and cash cattle prices.”
U.S. beef exports are expected to increase about 2 percent in 2011, to an estimated 2.35 billion pounds, after sharply higher shipments to Japan, Russia and South Korea led to a 19-percent jump in 2010, Shagam said.
Escalating grain prices are another potential headache for beef producers, Shagam said. Corn futures rallied 52 percent last year as ethanol demand rose and the U.S. harvest generated lower-than-expected results.
Corn on U.S. cash markets is expected to average $5.05 to $5.75 a bushel for the 12 months that began last September, compared with $3.55 the previous year, according to the USDA.
“Much of the grain volatility which was experienced in 2010 will likely continue in 2011,” Shagam said. “Feed prices are expected to climb as corn supplies ahead of next year’s crop are expected to be very tight.”
In trading Feb. 25, May corn futures rose 25 ½ cents to $7.22 a bushel. On Feb. 22, corn reached a 31-month high at $7.24 ¼, based on front-month futures.
Cattle prices have already hit record highs in daily futures trading, topping $112 per hundredweight last month. On Plains cash markets Feb. 24, steers averaged about $111, according to USDA reports.
