Dateline: January 4, 2007

Beef prices to hold firm in new year

Consumers can look forward to steady retail beef prices in 2007 as beef demand levels out and cattlemen continue to produce adequate supplies of beef. 

“Retail beef prices averaged $3.98 per pound in 2006, down 10¢ from the $4.08 we saw in 2005,” said Jim Gill, market director for the Texas Cattle Feeders Association (TCFA) in Amarillo.

Speaking at the annual TCFA Year-End News Conference in December, Gill said strong beef demand has supported higher beef prices for several years. 

“But presently, beef demand seems to be leveling out; and it is likely that 2007’s retail beef price will show very little change from this year.”

For cattle feeders, the prediction is much the same – 2007 fed cattle prices should trade in a range similar to the price range seen in 2006.  Gill’s outlook for fed cattle prices: $78 to $86 in the first quarter; $82 to $88 in the second quarter; $84 to $90 in the third quarter; and $86 to $94 in the fourth quarter.

“Fed cattle prices during 2006 averaged near $86 per cwt. with a range from $78 to $98 during the year,” he said.  Fed cattle prices were pressured by record-setting slaughter weights combined with higher-than-expected cow slaughter due to the extended drought.  Slaughter weights in 2007 will likely trend lower in response to higher feed costs, he said.

Those higher feed costs will be driven by high corn costs as ethanol demand continues to fuel the grain complex.

“Since mid-September, corn prices have increased more than $1.10 per bushel on the futures market,” Gill said. 

The increase is driving cost of gain higher in feedyards, Gill said; and if any winter weather develops in the next several months, cost of gain could go higher yet. 

Looking down the road, Gill says feeder cattle supplies will continue to tighten over the next several years as ranchers retain heifers.  “The cow herd expansion that started several years ago has slowed or even stopped this year due to the drought,” Gill said. 

While that will put a bullish foundation under feeder cattle prices, pressure will continue to come from higher corn prices. 

In fact, cow-calf and stocker operators have seen feeder cattle prices come under pressure the past few months due to escalating corn costs, Gill said.