November 23, 2006

 

US cattle market to remain volatile

 

 

Uncertainty would continue to rule the 2007 US cattle market, and farmers should monitor the many factors likely to cause significant price swings, noted Walt Prevatt, Auburn University Extension economist.

 

Some of these factors according to Prevatt were the length, extent and severity of the drought, growing supplies of broilers and pork, export and import sales of beef, broilers and pork, and consumer beef demand. The cattle markets could experience some volatile movements with abrupt changes in any of these factors or a combination of them, he added.

 

As part of the changes, domestic beef production could increase by 3.1 percent, with beef and veal imports and exports expected to post a minor increase. In that case, the US net beef supply during 2007 would go up by about 2 percent, he pointed out.

 

Assuming a stable domestic consumer beef demand, the combination of an increase in the US net beef supply coupled with increases in the net broiler supply and the net pork supply would pressure farm-level beef cattle prices lower during 2007.

 

Any changes in production and or export and import levels of these three competing meats could cause major movements in beef prices, according to Prevatt.

 

The year 2007 could thus witness slight changes, significant among them being the highest average prices for all classes of cattle during the first quarter and the lowest average prices during the third quarter for choice slaughter steers besides registering highest prices for all other classes of beef cattle during the fourth quarter.

 

The simultaneous increases in the supplies of beef, broilers and pork could pressure meat prices lower during 2007. Driving the increase in net beef supply includes an increase in cattle inventory, heavier carcass weights, and larger levels of beef imports.

 

Also, US beef exports could rise during 2006 and 2007, he said explaining the opening of beef trade with Japan and South Korea during 2006 offers added opportunities to increase US beef exports next year.

 

However, future export growth could be gradual and it might take a couple of years to reach pre-2003 levels.

 

The beef export levels and competing meats could have a significant impact on US beef prices during the next couple of years.

 

As should be expected, the 2007 cattle market has the potential for some big price swings, asserted Prevatt adding changes in the levels of any of these factors could add much volatility to cattle market prices in 2007. However, prices should remain cyclically strong and average at 3 to 6 percent below 2007 prices.