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Shrinking cow herd could pressure beef prices

A smaller inventory of cattle in the U.S. is expected to provide upward pressure on beef prices throughout this year and possibly into 2013. We have audio from Purdue's Chris Hurt.
Compiled by staff 
Published: Feb 3, 2012
USDA in its semi-annual cattle inventory report released Jan. 27 estimated the number of all cattle and calves in the U.S. as of Jan. 1 totaled 90.8 million head, down 2 percent from the previous year.

In fact, the Jan. 1 herd size was at its lowest level for that time of year since 1952.

“This report very much is attributable to the drought in the South,” which forced many cattle farmers to liquidate herds, Derrell Peel, ag economist at Oklahoma State University, told FarmWeek.

“The industry in 2011 was poised to stop liquidation or expand slightly,” he continued. “Now (with a continuation of the drought and herd liquidation) we’re facing some of the same challenges to start 2012.”

The cattle herd last year declined in the two largest cattle production states in the nation, Oklahoma and Texas, by 14 and 13 percent, respectively.

Reduction of herd numbers, though, may not be quite as severe as it appears on paper. The average carcass weight of cattle that went to slaughter in 2011 was 773 pounds compared to just 575 pounds in 1958, according to authors of the CME Group Daily Livestock Report.

“Certainly from a production standpoint, it’s not that small of an industry,” Peel said. “But the (herd) numbers have continued to go down and we are at a smaller level than we ever intended to be.”

This year marked the sixth in a row and 12 out of the past 14 years the beef cow herd declined in the U.S., according to the Daily Livestock Report.

The drop in cattle numbers suggests beef production this year could decline about 4 percent, Peel said.

But exports so far have remained strong. Beef prices, therefore, are expected to increase this year by another 4 to 5 percent.
 
“We have very tight numbers ahead of us for 2012 and 2013 at best,” Peel said. “We’ll continue to see record (cattle) prices and they will go higher yet.”

As for retail prices, Peel believes consumers will determine when beef prices get too high to continue demand growth.

“We don’t know how much higher (beef) prices can go,” he said. “The real limit will be at the consumer level. We just don’t know where that is because we’ve never challenged these levels.”

The price of a pound of Choice beef in December averaged $5.02 per pound, which was a new nominal high for the fourth month in a row.


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