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Brown gives beef market forecast

Monday, March 26, 2012

Many factors affecting the beef market for 2012 remain up in the air, said Dr. Scott Brown, University of Missouri marketing specialist. Brown, who spoke at the at the 43rd annual Monett Beef Cattlemen's Conference, said record prices are very possible, but whether record profitability follows remains to be seen.

"High prices are due to tightness in domestic supplies," Brown said. "I'm not calling for that to change much soon."

Herds dropped to low levels last year as part of a continuing trend. The drought in Texas and Oklahoma forced producers in those states to sell off animals, creating an even smaller supply.

"Even if the rains come back, it will be a while before Texas and Oklahoma pastures recover. When they do, I think we will be very short on the breeding side," Brown said.

Charts of beef production showed the number of animals has been mostly flat for the last five years. Brown expects herd sizes to stay down through 2014.

"I think once the market comes back, we'll see a rebound," Brown said.

Prices for beef cattle have dropped since last summer, only to rebound by August. Brown said prices will likely do the same in 2012.

As cattlemen in Texas and Oklahoma begin to rebuild their herds, the bred-cow price on the Oklahoma City market, which is already high, could go "crazy," Brown said. Bred heifers in the Show-Me Select program were already selling for $2,000. Brown expected females would remain in demand for the next two years.

If the consumer market stays strong and export demand keeps growing, Brown said fed cattle could be selling at $150 per hundredweight. Young calves could sell up to $230 per hundredweight.

"I see a lot of signs that look positive," Brown said.

The big variable standing in the way of profitability is the price of corn. The return of $8-a-bushel corn prices pressures the market, Brown said. Profitability on feeder cattle drops at that price, and Brown warned that feedlot capacity could decrease in the long-term under such prices.

If 94 million acres are planted in corn this year, corn prices could drop down to $6.50 to $7 a bushel. That would be good for cattlemen, Brown said. If only around 92 million acres are planted, as has been the case in recent years, prices are not likely to change significantly.

In the past year, Brown said the profit margin has improved for cattle producers. Several factors have helped. Brown said demand has picked up. Since around 2007, American consumers have each eaten 20 pounds of meat less per year. The U.S. restaurant performance index has been expanding since September 2011, showing the market is again growing.

The strongest potential source for growth continues to be in the export market. Brown said markets in Canada, Mexico, Japan and South Korea have stayed strong for U.S. beef. Total meat exports from the U.S. have grown from 4 billion in 2004 to 12 billion in 2011.

If the U.S. dollar weakens in the international exchange, other countries will be able to buy more American exports, spiking demand. If another major market like China enters the field seeking U.S. meat exports, demand could jump significantly and push prices even higher.

Rising gasoline prices will moderate American consumer demand, Brown warned. Perhaps more significantly, high gasoline costs will force up other food prices at the grocery store. Brown said that will leave less room in the food budget for better meats.

"We're going to give consumers higher meat prices in 2012," Brown said. "I don't think it will get so high that it will back off demand."



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