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U.S. cattle market should remain strong, volatile

 U.S. cattle market should remain strong, volatile
• Factors to watch next year include the current weak U.S. economy, high levels of unemployment, lack of consumer confidence, political gridlock and chaos at all levels of government, and other issues.

The U.S. cattle market should remain relatively strong for 2013 and average 4 to 8 percent higher than in 2012, according to Walt Prevatt, Auburn University Extension economist.

“As should be expected, the 2013 cattle market has the potential for some big price swings,” says Prevatt in his annual U.S. beef cattle situation and price outlook.

Abrupt changes in one of several factors could add a lot of volatility to cattle market prices, he says. “Cattle farmers will need to search for ways to lower their unit cost of production and ways to enhance market prices in order to achieve profitability during 2013,” he says.

Factors to watch next year, says Prevatt, include the current weak U.S. economy, high levels of unemployment, lack of consumer confidence, political gridlock and chaos at all levels of government, and other issues.

“There is little wonder why future economic uncertainty is fresh in the minds of many U.S. citizens,” he says. “The decisions made on these issues are believed to have an overwhelming effect on business and consumer spending and our future prosperity. Unfortunately, there is not convincing evidence about what the future holds.

“Consumers, at least for right now, are spending less and saving more. Only time will tell if this may be the start of a longer term shift in consumer behavior.”

U.S. beef demand has felt some challenges the last three years due to high unemployment and tightening consumer grocery budgets, says Prevatt.

“Domestic beef demand is expected to be further tested during 2013 as consumers continue to experience rising prices for most goods and services.

“If consumer disposable income does not rise proportionally, shopping habits and choices will shift as prices rise, forcing consumers to substitute and/or reduce the bundle of goods and services they consume. The weak U.S. economy during 2012 has limited domestic beef demand growth,” he says.

Per capita consumption of beef is expected to decline during 2012 and 2013, he adds.

“Beef production during 2012 is expected to be 25.8 billion pounds, down 0.4 billion pounds or —1.6 percent from a year ago. Beef imports for 2012 are estimated to be 2.4 billion pounds or up about 349 million pounds (17 percent) from 2011.”

Export numbers

Beef exports for 2012 are expected to be 2.5 billion pounds, down about 307 million pounds (minus11 percent) compared with 2011.

The combination of lower domestic beef production, a modest increase in imports, and slightly lower exports are expected to increase domestic net beef supply marginally in 2012 (plus 244 million pounds or 1percent).

Domestic disappearance will result in beef per capita consumption to approximately 57.5 pounds per person in 2012. Per capita consumption for 2013 is estimated to be about 55.2 pounds per person, says Prevatt.

“Also, as the U.S. population increases in the future, per-capita beef consumption likely will be lower unless U.S. beef production increases and/or imports increase.”

The average retail beef price for 2011 was $4.44 per pound. Monthly average retail beef prices, during the first eight months of 2012, averaged 25 cents higher than a year ago.

The quantity of beef clearing the market is estimated to be 244 million pounds more during 2012.

The 2012 average retail beef price is expected to be about 4 to 6 percent higher than in 2011.

“However, during 2013, retail beef prices will be tested if unemployment continues to rise, economic recovery is not sustained, and consumers are pressured by the rising costs of goods and services.”

Additionally, says Prevatt, it is very important that the U.S. continues to sustain and grow beef export markets. “These export markets could be worth $5 to $10 per hundredweight on the value of fed slaughter cattle. Growth in beef export markets also will help to moderate the price impacts of any weaknesses in U.S. broiler and pork exports.”

U.S. meat production on the whole in 2013 is expected to show a significant decline, says Prevatt.

Beef, broiler, and pork production are all expected to show decreases next year. Beef production in 2013 is expected to decrease about 1.1 billion pounds, broiler production is expected to decrease by about 0.4 billion pounds, and pork production is expected to decrease by about 0.3 billion pounds during 2013 compared with 2012.

“Any changes in these production levels or export levels of pork and broilers could have a significant effect on U.S. beef prices.

“Additionally, any further increases in feedstuff prices will likely alter these 2013 production projections. A watchful eye on the production and export levels of competing meats and feed prices will help identify potential changes in beef prices.”

Prevatt stresses that the 2013 cattle market will continue to operate with a great deal of uncertainty.

“Cattle farmers should monitor several factors, including changes in domestic beef demand, supplies of broilers and pork, export and import sales, feedstuff prices, monetary exchange rates, and adverse weather impacts.

Volatile market movements

“The cattle markets will likely experience some volatile movements with abrupt changes in any of these factors and/or combinations of factors.”

The 2012 growing season of the major corn growing regions started with an earlier planting schedule and more acres planted, says Prevatt. Industry expectations were for a 13-plus billion-bushel corn crop.

“However, dry weather severely impacted growing conditions and caused yield levels to plummet in most major grain growing areas.

“The majority of the crop experienced below-average growing conditions most of the season. Fortunately, harvest weather in most areas provided for a timely harvest.”

Corn and soybean futures prices for 2012 have increased corresponding to the forecasted smaller crops that were projected this season, says Prevatt.

“Corn and soybean prices are expected to move higher in 2013 due to tight supplies worldwide. Therefore, livestock farmers should seriously consider taking steps to manage their feed purchases during the 2012 crop harvest. If these high grain prices continue, animal agriculture will no doubt get smaller.”

The tight stocks-to-use ratios of most U.S. grain crops will keep market analysts monitoring the sizes of crops in Europe, Asia and South America, he says.

“Commodity prices are high and should encourage additional production. Favorable weather and growing conditions will be extremely important to reduce the pressure on grain stocks-to-use ratios.”

Another factor that can affect feed prices and feeder calf and feeder cattle prices is the level of export demand for corn and soybeans, he notes.

“Any major changes in world export demand for these commodities could significantly move market prices. Economic growth in several Asian countries has begun to slow. Additionally, the strength of the U.S. dollar is certain to influence the world export demand (a weak U.S. dollar.”

Unfortunately, says Prevatt, pasture and range conditions have not been better over many of the cow-calf states this year.

“The pasture and range conditions as of Sept. 12 that was rated as poor or very poor was 58 percent of the U.S. acreage in pasture and rangeland. These poor pasture and forage conditions, coupled with higher input costs and higher cull cow prices, have resulted in a large number of cull cows moving to slaughter this year.

“The current weather forecast suggests an El Niño condition which usually means colder winter temperatures and higher rainfall in the Southeast.”

Total 2012 U.S. hay production is expected to be smaller than a year ago at about 120 million tons. That is down 10.8 million tons or 8.2 percent from last year. Average yield is expected to decrease significantly and acreage harvested is expected to increase marginally for hay production.

“Therefore, alternative winter forages and feedstuffs will be in much demand this winter as cattlemen seek to feed their cow herds and stocker cattle.”

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TAGS: Corn Outlook
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