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Beef and Grain Prices to Rise Further

CattleFax analysts say beef prices to rise across the board this year.

Higher cattle prices, continued high feed prices and possibly stronger-yet exports were forecast by CattleFax analysts this morning at the organization's annual industry outlook.

Analyst Kevin Good said feeder cattle should average $122 per cwt. this year, with support around $110-115 and resistance to further increases at $130-134. He also said the Choice-Select spread this year should be $10.50 per cwt..

Good said feeder cattle should average near $150 per cwt., probably varying by 15% through the year. The low could be around $139 and the high around $160.

Calf prices should average about $175 for a 550-pounder, and could range from $162 to $188. The highs should be seasonal and occur in the spring, Good said.

"The bottom line is the cow-calf producer is in the driver's seat and probably will continue to be for several years to come," he added.

Cows and such

Slaughter cows hit nearly $72 in 2011 and should average $80 per cwt. this year. Breeding females will increase $250-300 per head beyond the average price of $1,200 paid last year.

Retailers and the rest of the production chain really suppressed the needed rise in retail beef prices last year and will not be able to hold those back further this year, the analyst said. Hence retail prices should increase 8% or so.

Spot corn prices in the first half of the year should remain high, somewhere between $5.50 and $6.75. Depending on weather and the international demand situation, probable growth in corn stocks-to-use levels in the second half of the year should create spot corn prices of $5-6.50.

Volatility will be the standard in all markets, however. CattleFax CEO Randy Blach said risk management is being used at record levels and it needs to be. He added: "These are dangerous times."

He noted volatility in cash fed-cattle prices from one week to the next in 2011 was huge. Nearly one-third of the time, fed-cattle prices changed by $40 per head or more from one week to the next.

The daily trading range in spot live-cattle futures averaged $1.35 per cwt. last year and will almost certainly increase this year, he said.

More exports

Exports appear to have added $261 per head to cattle values this year, said analyst Brett Stewart.

That appears poised to grow further this year. Stewart said he expects U.S. beef exports to grow by 11% this year over last year, adding $26 per head additional income to U.S. beef producers' pockets.

The Japanese may sign an agreement easing BSE testing and age requirements. That could be worth up to $50 per head, in additional income, Stewart said.

The dramatic growth in exports has been spread across multiple markets and implies that diversification has been extremely valuable.

"This tells us we're better off diversifying into as many markets as possible," he said.

Credit demands

The run-up in prices experienced by the industry has significant effects on capital requirements and credit usage, Blach added.

He said it takes 60% more capital today than in year 2000 to operate a cow-calf operation or 60% more to feed cattle today than in 2009.

Because of that Blach said adequate lines of credit will be more critical than ever to success in the future.

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