U.S. cattle and hog prices this summer are expected to be “sharply” higher than previously forecast because of tight supplies, government forecasters said.

Prices for “choice” grade slaughter-ready steers are projected to average $91 to $95 per hundred pounds during the second quarter, up from a previous estimate of $87 to $91, the U.S. Department of Agriculture said in its monthly supply and demand report today.

In the third quarter, steers will average $89 to $95 per hundredweight, up from a previous estimate of $87 to $95, the USDA said. Cattle averaged about $82.70 in 2009.

“Cattle and hog prices were strong in the first quarter,” the USDA said in today’s report “Forecasts are raised sharply into the summer quarter as cattle and hog supplies are expected to be tight.”

Livestock prices rallied this year – with cattle futures topping $1 a pound in futures trading today - as meat processors competed for shrinking supplies. With the recession curtailing meat demand, beef and pork producers reduced herds to stem losses. Earlier this year, inventories of cattle on feed fell to a seven-year low.

“Coming out of winter, we were expecting cash cattle in the low- to mid-90s (in dollars per hundredweight), and we’ve already exceeded that,” said Marty Foreman, an analyst with Doane Advisory Services in St. Louis. “We’ve just had higher cash and beef prices than we’ve expected.”

Slaughter-ready hogs are expected to average $52 to $54 per hundredweight, up from a March estimate of $47 to $49, the USDA said. During the third quarter, hogs are forecast to average $53 to $57, up from a previous projection of $49 to $53. Hogs averaged about $41.20 in 2009.

Near the close of trading today, April live cattle futures traded at Chicago-based CME Group rose 0.5 cent to 99.85 cents a pound, after rising to $1.002, the highest price for a closest-to-expiration contract since September 2008. June cattle rose 0.575 cent to 94.9 cents.

June lean hogs fell 0.325 cent to 84.4 cents a pound. The CME hog contract reflects carcass prices.

The USDA also raised its forecast for U.S. corn supplies and reduced estimated feed use, citing smaller livestock herds.

Corn stockpiles at the end of the 2009-10 marketing year in August will total 1.899 billion bushels, up 100 million bushels from a March forecast and up 226 million bushels, or almost 14 percent, from 2008-09, according to the USDA report.

Corn feed and residual use for 2009-10 was lowered by 100 million bushels, to 5.45 billion bushels.

Livestock producers should see ample feed supplies and cheaper corn this year, though a drought, a wet spring or other weather developments that hamper production could still push crop prices higher, Foreman said.

The USDA data “suggests there’s a fairly adequate supply of old-crop corn, but supplies beyond that will hinge on how the new crop unfolds,” Foreman said. “We have adequate supply, but it won’t preempt a market response if weather becomes threatening.”

The USDA narrowed its project range for corn prices this year to $3.50 to $3.70 a bushel from $3.45 to $3.75 previously. May corn futures in Chicago fell 2 ½ cents to $3.45 ¾ a bushel near the close of trading.

Cash cattle prices may be near a peak, Foreman said, citing prospects for higher feedlot placements this spring that will lead to increase beef supplies later in the year.

Negotiated cash sale prices for some slaughter-ready steers topped $101 per hundredweight in central U.S. markets, according to USDA reports.

“Seasonally, prices tend to peak out in early to mid-spring,” Foreman said.

Source: Bruce Blythe, Vance Publishing