UNL economist cautious about beef markets

Feb 27, 2009
by WLJ
UNL economist cautious about beef markets

Although supply side factors remain positive, recession worries and input costs could lower beef prices, said a University of Nebraska– Lincoln (UNL) economist.

Rebecca Small pointed to the large number of cows culled and reduced number of retained heifers during the past two years, as well as a smaller calf crop, as factors putting upward pressure on beef markets. Imported cattle supplies have also been restricted because of country of origin labeling regulations, she said. On the demand side, however, she said that the global recession decreases consumers’ disposable income.

So, instead of eating out or buying higher end meat products, they will look for cheaper protein, such as poultry or even other protein sources.

If energy prices, particularly oil prices, increase again, cattle prices may drop, depending upon transport distances.

Lower corn prices might leave some room for optimism, Small said. Producers should keep their eye on ethanol production, though.

Although production may be smaller in the short term, long-term production could increase if the renewable fuels standard is enforced, boosting corn prices along with it. As producers try to decide whether to sell calves or to hold them for the yearling market, they need to make their assessments on an individual basis, Small said. Producers will pay different prices for their inputs, so they need to factor those costs into their calculations.

Fed cattle price and feeder cattle price variation has had the greatest impact on profitability over the past several years, so managing the risks associated with those prices is important to focus on. Corn and other input variables have a smaller impact on year-toyear profit variation, but are still important to manage.

Profits from these systems are generally predictable by the ratio of the fed cattle sales prices to the feeder cattle purchase price. Producers can look at the expected fed cattle price based on the futures market at the time they would sell their finished animals. If that price is less than 80 percent or so of the current value of the feeder cattle, feeding and background systems have a lower probability of being profitable, Small said. — WLJ