Source: Rita Jane Gabbett, MEATINGPLACE, 2/3/12
Initial indications that cattle producers are starting to retain breeding stock to rebuild herds points to higher cattle prices and even tighter beef packer margins in the near term, according to university and Wall Street analysts.
“The last time we calculated beef processing margins this poor was [the fourth quarter of 2007], before Tyson closed its Emporia, Kans. facility,” wrote Deutsche Bank analysts in a market report. “While we expect packers to cut back on slaughter to improve margins, should the herd start to expand (analysis indicates it is unlikely to occur this year on a widespread basis), a tight supply of market-ready cattle as heifers are retained augurs for a plant closure.”
USDA’s Cattle report issued last week showed a surprising 1.4 percent increase in heifers kept for beef cow replacements. With cattle moving out of the Southern Plains, the Deutsche Bank analysts predicted south Texas plants would be most at risk.
Cattle price implications
Purdue University Extension Economist Chris Hurt also noted early indications that the trend of cow liquidation driven by high feed prices may be coming to an end.
“This is the first increase in heifer retention since feed prices began increasing,” he wrote in a recent report. “If heifer retention continues to grow in 2012 and 2013, beef supplies will not increase until 2015. So, the modest heifer retention now is actually a (cattle) price enhancing factor in the short-run with the bearish implications not occurring until 2015 and beyond.”
Hurt predicted finished cattle prices would push into the higher $120s per hundredweight this spring, moderate to the mid-$120s this summer, and finish the year near $130. Spring highs in 2013 could climb to the low $130s.
