February 23, 2010

US cattle price rally not over yet

The rally in US cattle prices will continue, driven by recovering beef demand at a time of constrained supplies.

Germany's Commerzbank said with the number of cattle held on feedlots falling 2.6% to its lowest January level in seven years, the market retained the dynamics for further gains.

The decline in the feedlot herd should - with some time lag - result in a decrease in supply of live cattle that is ready for slaughter, and the price of live cattle should increase further, Commerzbank said.

The US herd of both beef and dairy cattle has shrunk to its lowest levels in 50 years, because of the higher productivity of milking cows and the waning profitability of meat operations.

The average net income of cattle farmers slid by 26% last year despite falling corn prices as recession prompted consumers to switch from red to white meat.

But that trend looks likely to reverse this year as economic revival feeds through, Commerzbank said, noting USDA forecasts of a 10% rise in American beef exports.

The outlook that a rising demand for beef will coincide with a limited supply and improved export possibilities for US beef will lead to price increases for both live cattle and fed cattle in 2010, according to the bank.

Prices of live cattle would average 91 cents a pound this year, up 8% on the mean for 2009. The average price of feeder cattle would rise by 6% to 103 cents a pound.