How did the cattle prices become so high this year within the US? This is the question many US cattle producers are asking. It was not that surprising to have a record high cattle prices but the major surprise is how high these have become. In the first quarter for example the average Nebraska Steer was around $147 per live hundredweight which was more the $20 higher than the previous first quarter prices. Percentage wise this is a 17% average increase for the first quarter.
It is relatively easy to list some possible causes for the increases, however none of them would seem significant enough to have caused such a high price increases. We can start with the fact that meat a poultry supplies have been low. We have had a four 4% decrease in beef production and broiler egg hatchability has been low, reducing chicken supplies below expectations. Also the PED virus in hogs may have been the real kick, primarily because the pork market appears to be having sharply overshot prices due to the uncertainty of production. There is an also argument that the demand has increased, but the first quarter GDP growth of only 0.1%. The data we see on trade is positive but does not explain such high prices.
Much like pork, we are left with an incomplete understanding of why cattle prices were so high, especially in March and April. Like in the pork sector, this may mean that cattle prices were "caught-up" in the fear of very short meat and poultry supplies and may have become overpriced. This may be another example of the old market adage of "buy the rumour and sell the fact."
Record beef prices for consumers have also become a reality. In 2013, retail beef prices averaged $5.29 per pound but moved to a record $5.55 in the first quarter of 2014. Retail beef prices in 2014 are now expected to average $5.67 per pound, an increase of 7% over last year.
Current live cattle futures markets are taking a more moderate approach to prices for the rest of the year now that the highs of the year are likely behind us. Prices of finished cattle are expected to move downward to the mid-to-lower $140s in May and June. Prices are expected to dip more in the third quarter with an average in the $135 to $139 range, and then recover into the low-to-mid $140s for the last quarter average. Prices in 2013 averaged $126 and this year's new record is expected to be near $142
Unexplained high prices in the first four months of 2014 have added new excitement for cattle producers as they see strong profitability potential for the first time in years. This means that the conditions have become positive for some beef cow producers to move toward expansion. The two conditions that we have suggested for expansion are the movement of calf prices above $1.75 per pound and restoration of pasture and grazing land after dry or drought conditions. In terms of calf prices, calves weighting 500 to 550 pounds at Oklahoma City averaged $2.15 per pound in the first quarter and heifer calves averaged $1.93. Both were record highs
The expansion of the beef herd is just beginning and will likely extend for multiple years. This means small supplies and strong prices of beef in 2015 and 2016. Beef producers, however, should expect both poultry and pork production to grow rapidly in 2015 and 2016.