U. S. cattle producers will likely earn small profits in 2010 amid the smallest cattle herd in about 50 years, and that should mean higher cattle prices, Cattle-Fax analysts said Jan. 29.
However, beef sales will remain weak as cash-strapped consumers continue to favour lower-priced foods like hamburgers and hotdogs over higher-priced T-bones and sirloins, the analysts said during a presentation at the National Cattlemen’s Beef Association annual convention here.
“Feedlot cattle prices should be slightly positive for the year if risk management is used,” said analyst Kevin Good.
Risk management could include using futures to lock in sale prices.
On average, Cattle-Fax expects fed cattle to trade from US$82 to $93 per cwt in 2010 for an average of $86 to $88. That would be up from $83.50 in 2009.
WEAK BEEF SALES HURT
A decline in beef sales has put the greatest pressure on cattle prices as the recession has hurt the restaurant business, an important market for beef.
“Casual dining same-store sales are down six to eight per cent year over year and the high-end steak houses have had same-store sales down 20 to 30 per cent in the last 12 months,” said Good.
That decline in sales translated to about $140 less per head of cattle for producers.
Restaurant dining has declined as consumers have eaten more at home. That shift has meant an increase in beef sales through supermarkets, said Good.
FEEDLOTS, BEEF PLANTS AT RISK
While profits should return for cattle producers, the smaller cattle herd may force some feedlots and possibly a beef plant or two to close, Cattle-Fax said.
“I don’t think it is any secret that we have 25 to 30 per cent excess feeding capacity in this industry,” said analyst Randy Blach.
In addition, Blach said a greater number of cattle are being fed by the largest feedyards. Also, the feedyards own more of the cattle, versus years ago when investors and cattle ranchers owned them.
The smaller herd also may put beef plants at risk as it will be hard for some of them to operate efficiently.
“The packing industry is also overbuilt, and given the expectation for smaller fed cattle supplies the next few years, don’t be surprised if the industry loses another packing plant or two,” Cattle-Fax said in a statement distributed on Friday.
Tyson Foods Inc. suspended cattle slaughter at its Emporia, Kansas plant in February 2008.