Cattle prices could move higher due to less supply
COLLEGE STATION - With more people eating at home as a result of the recession, an improved economy could encourage consumers to spend more money eating out in the coming months, which could be good news for cattle producers later this year and into 2010, said a Texas AgriLife Extension Service livestock economist.
"Do you think a new trend has been started with fewer people eating out and more eating at home?" asked Dr. David Anderson, AgriLife Extension Service livestock marketing economist, at the recent 55th Texas A&M Beef Cattle Short Course. "Some of my colleagues think so. If the economy rebounds, I think not. That's going to lead to higher cattle prices when taking into consideration fewer overall cow inventory numbers."
Cattle prices will continue to their seasonal lows this summer, an expected pattern as producers sell off calf crops. But there's higher volume at auction markets in certain parts of the state due to drought. From Austin extending throughout South Central Texas, ranchers are coping with one of the worst droughts ever, Anderson said.
The southern region of the country is in the most extreme drought area, according to the U.S. Drought Monitor, and accounts for 6 percent of the nation's total beef supply (more than 2 million beef cows are in the area) as ranchers further reduce herds, Anderson said.
AgriLife Extension economists have estimated $3.6 billion in losses, and that number could eclipse the $4.1 billion mark set in 2006. The only alternatives for ranchers who don't have grass is either to move animals to rented pasture where forage is sufficient or sell herds that have taken years to assemble.
With ongoing drought, Texas beef cow numbers continue to decrease. Nationally, that's having an effect on the overall U.S. beef cow inventory, Anderson said.
"We're producing fewer cows and consequently less beef," Anderson said.
Dairy producers are also taking a hit. The average producer cost for milk is $16 per hundredweight and income is $11 per hundredweight. When you factor in the woes of both the dairy and beef industry, it doesn't paint a bright picture on the supply side.
"I'm projecting fewer beef cows for next year and on into 2011," he said.
The downturn in the economy has also led to more consumption of lower-priced beef, Anderson said. The recession is the main cause as consumers continue to be cautious on how they spend their money and are looking for value at grocery outlets.