Could cull cow prices be at record highs this year? Tim Petry with North Dakota State Univeristy says the short answer to that question is yes, but there are many factors that can affect prices. Cow prices were at a record high in 2007 and again in 2008, which was not that long ago.
A setback in prices occurred in 2009 because of a historically high beef and dairy cow slaughter and a weak economy impacting demand.
Cow prices have increased more than normal this year in spite of a continuing high cow slaughter. A wide range in cow prices occurs due to differing grades, yields and other market factors, such as fed, white-fat cows versus thin, low-yielding cows. The geographic region where the cows are sold also is a factor. However, in general, cow prices have increased more than $10 per hundredweight (cwt) this year when a more normal increase would be $5. Prices are currently more than $10 per cwt higher than last year. On a weekly basis, prices have been averaging a couple of dollars higher than 2008, which was a record year.
Higher prices are being supported by strong demand for hamburger and sharply lower imports of manufacturing-grade beef. The “cheeseburger price war” among several fast-food chains that have been promoting low-priced menu items during the economic downturn helped demand. And after a harsher than normal winter in several regions of the country, consumers have been anxious to start the grilling season. Higher prices for competing meats, such as chicken and pork, also have stimulated demand for hamburger.
Imports of grinding beef have been off almost 25 percent this year. Beef imports from our leading suppliers (Australia, New Zealand and Uruguay) are off by double-digit amounts. Australia’s beef industry is in a herd rebuilding phase after several years of drought. Ironically, there have even been reports that too much rain in places may have hampered Australian cattle from getting to market.
The decline in value of the U.S. dollar relative to currencies in those countries where we get beef also has made our market less attractive and other markets more lucrative. That is particularly the case for Uruguay.
Fresh, 90 percent lean wholesale boneless beef prices are about $15 per cwt higher than last year as retailers compete for product. Furthermore, prices for fresh, 50 percent lean wholesale beef also have increased as carcass weights of fed steers and heifers have declined. Severe winter weather was a factor in the decline, which has caused less 50 percent trim to be available.
There also is evidence that meat processors are grinding chucks from fed cattle to help satisfy the demand for ground beef. Wholesale boneless two-piece chuck prices have increased more than $40 per cwt from last year’s depressed levels.
The cow slaughter in 2010 has been close to last year’s elevated level, but almost 20 percent above the 2004 to 2008 average. The beef cow slaughter has been almost 8 percent higher, which is partially due to an increase in imports of Canadian cows. The dairy cow slaughter declined about 7 percent from last year, when the first of three dairy cow buyout programs was in progress.
Looking ahead, the total cow slaughter usually is seasonally low during the summer months. Several factors favor reduced beef cow slaughter this year, which should be supportive to prices.
First, overall grazing conditions in the U.S. for beef cattle are probably the best that they have been for several years. Coupled with the good grazing conditions, the heavy beef cow culling that has occurred in the last several years and stronger calf prices point to reduced slaughter levels.
The dairy cow slaughter also is typically lower during the summer months but was elevated last year with the buyouts. Dairy prices still are struggling. Although no buyouts have been announced, dairy cow culling could be higher than average this year.
The bottom line is that prices should remain strong through the summer months until the seasonal fall decline starts in September.
Source: Tim Petry-North Dakota State University/Drovers
Posted by Russell Nemetz