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Beefs and Beliefs

Prognosticators Optimistic For Low-Cost Corn And Pricey Cattle

Barring unforeseen wrecks, economists think corn could stay low and cattle relatively high until 2020.


I've been working this week on a roundup of some of the top economic consultants for my November edition of Beef Producer and decided to share them with you here in my blog.

Most of these folks think corn and other feedstuffs could stay comparatively low-priced and that cattle should stay relatively high until near the end of the decade.

Dan Basse of AgResource Co. in Chicago said recently that corn prices should be in the range of $3-4 for seven years or possibly more. Basse also said fed-cattle prices should peak this fall but are likely to remain strong for five to seven years.

Basse said the corn price will be depressed for several years by a combination of a mature biofuel market, lower demand from the livestock sector, and the lowest US export share on record for a non-drought year -- that's assuming no more droughts.

Derrell Peel, Oklahoma State University livestock economist, thinks cattle prices have every opportunity to remain high, barring a black swan event or overall downturn in the economy.

"Looking at the 18 years it took to get into this thing, there's no way we wreck this ourselves very fast," Peel said recently. "I don't think there's any way we can produce ourselves into lower prices much before the end of the decade."

We've taken more than 3 million cows out of the national herd over that time frame and we all know how time-consuming it is to replace them, Peel added.

Scott Brown, an economics professor at the University of Missouri, noted recently that demand for the top-quality beef products, particularly top-grade Choice and Prime branded beef, is still increasing. Brown added that the demand for Select-graded beef is declining.

He also said his studies show chicken and pork are better substitutes from the retail meat case for Select beef than for Prime and Choice beef, and said likely this applies to middle and lower-income consumers.

He said data he generated on demand elasticity show the Prime market and perhaps the Choice market have room to grow.

"If that continues, what do we need 10 years from now?" he asked. "More Prime product out there, less Select product out there."

"I think we’re going to continue to see weights go up. Why would we not when we have the opportunity to continue to feed very cheap corn I think that increases the number of cattle that will likely grade Prime as well or upper Choice," he said.

Of course, this still fits fairly well with the "hamburger nation" concept Bill Helming, a private consultant and economist from the Kansas City area, has been espousing for more than 20 years.

Helming, has repeatedly warned that whole-muscle beef consumption is declining steadily while ground beef consumption is increasing at an equal rate.

In a recent newsletter to his clients, Helming made similar near-term predictions to other leading economists, including a belief that beef prices will peak sometime this fall.

The difference is that Helming has been noting for some time that we are in a modern-day depression, with more to come as the unprecedented debt problems at government, private and corporate levels must be unwound. Those are his long-term predictions.

In the short run, however, Helming told his clients to expect new-crop corn prices averaging in the lower end of the $3.45 to $4.05 per bushel price range and that beef prices will peak soon and begin sliding down.

He said, "From this point forward, the price of feeder cattle is going up faster than corn prices are going down. This reality will very likely continue in the months ahead. At the same time fed-cattle prices will likely not go much higher and will stabilize and start actually declining within the next 12 months."

Basse added that in late August rail transportation problems, together with expectations for a record corn crop were pushing cash corn down close to $2 per bushel in North Dakota.

“You have to manage risk,” Basse warned. He said last year the average per-hundredweight price fluctuation in the fed-cattle market was $17 per hundred, compared with $25.40 already in 2014. He said beef producers should expect $25 to $35 price swings going forward.

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