Cattle prices may be near a seasonal peak as feedlots expand inventories and consumers shun expensive beef, says Marty Foreman, analyst with Doane Advisory Services.
Wholesale beef prices have reached the highest levels in almost two years, an increase that will continue to ripple through to the supermarket meat case in coming weeks. With the economy still recovering from recession, pricier steaks and burgers threaten to turn off consumers.
“We expect higher beef prices to slow demand,” Foreman adds.
For cattle feeders, cash prices that topped $100 per hundredweight in the U.S. Plains this month may be about as good as it gets for the near future, he says. “A seasonal high is expected soon. “While (cattle) on-feed numbers may remain below a year ago for another month or two, slaughter levels increase during the spring into the summer, which tends to pressure prices.”
Cattle futures at the CME in Chicago rose yesterday after USDA’s April 23 report showed fewer animals than expected were sent into feedlots during March.
Today, futures prices rose early then tumbled, a “reversal” action that often has signaled previous market tops, Foreman notes.
At today’s close, June live-cattle futures fell 1.775 cents to 93.725 cents a pound, after earlier rising to 96.2 cents. June futures are down from a contract high of 96.3 cents on April 7.
While beef producers have shrunk herds the past three years, cattle-on-feed inventories may start exceeding 2009 levels by June or July, Foreman estimates.
At the beginning of this month, cattle on feed in Texas and other top beef states totaled 10.77 million head, down 3.5 percent from a year earlier, according to USDA’s report. That was the lowest April 1 inventory in six years.
Higher on-feed numbers won’t necessarily signal an end to the beef industry’s contraction phase. “That has to do with the overall inventory of cattle,” Foreman adds. Evidence of herd expansion is not likely to surface until January 2011, or more likely July 2011.
Futures traders still expect higher cattle prices toward the end of 2010, based on today’s prices. December cattle ended trading today around 96.325 cents a pound, down 1.6 cents.
On wholesale markets, choice graded boxed beef averaged $1.7041 a pound earlier today, the highest since prices neared $1.74 in July 2008, according to USDA data.