If you can't be happy with the cattle market now, then you just can't be happy, says Mississippi Extension Economist John Anderson.

A positive supply side situation and excellent demand for beef should continue to bring good prices for cattle producers, Anderson told his fellow economists at the 2003 Southern Region Agricultural Outlook Conference in Atlanta.

After surviving a year of depressed market prices, cattle producers saw a recovery develop in early 2003 and by late summer record setting prices were appearing up and down the cattle market.

“The feeder cattle market has been fantastic. We hit $82 for fed cattle in early February and I didn't think it could get any better than that. Now that's just pitiful, and I pity the folks who had to sell their cattle at $82,” Anderson says. “The breaching of the $90 barrier the week of Sept. 8 must certainly be considered a significant milestone. The fact that this milestone was reached in early September was significant in itself. Fed cattle market highs do not often come in the summer when supplies are typically at or near their peak.”

The same week that fed cattle were selling for $90 per hundredweight feeder cattle in the 700 to 750-pound weight category sold for an average price of $103.91 per hundredweight. That's quite a change for one year earlier when cattle feeders were losing money at what Anderson calls “a prodigious rate.”

“The old adage that nothing cures low prices like low prices proved to be true in the cattle market in 2003,” says Anderson. “A string of unfortunate events in 2002 — a foot and mouth disease scare in Kansas, a ban on U.S. poultry imports by Russia, unexpectedly large hog numbers — conspired to keep cattle feeders wallowing in red ink for most of the year. But beginning in June of that year, placements of cattle into feedlots began to fall significantly below the five-year average.”

As marketable supplies decreased, fed cattle prices began to improve and were challenging the $80 per hundredweight mark by early 2003. These higher cash prices encouraged feeders to market cattle more aggressively, which cleaned up market-ready supplies of cattle and led to a decline in fed cattle weights, contributing to a reduction in total beef production.

Then in May of 2003, a single case of bovine spongiform encephalopathy (BSE) was discovered in Alberta, Canada. “Overnight, we shut the border on everything coming in from Canada, and that has obviously effected our supply situation,” Anderson says. “Beef exports are also up due to the Canadian loss of markets due to BSE. Our neighbor's loss was our gain, because much of the export market that they lost overnight, we picked up.”

How long imports of live animals from Canada will remain restricted is uncertain, he says. It's also not clear how many animals will be ready to come down from Canada when the ban is lifted, because cattle placements into Canadian feedlots have slowed significantly.

According to Anderson, there continue to be exceptional prices at all levels of the U.S. cattle industry amid a short supply situation and strong demand for beef. What's more he sees tight supplies continuing through the fourth quarter of 2003, which will be positive for prices.

“Calf prices are moving up, but this market is not as strong as the feeder market, and there is a lot of uncertainty about where we are going in this market,” he says. “We do know that there are a lot of empty pens in feed lots, and while January-August beef production was down about 19 percent, the average boxed beef cutout value is up 17 percent. On a very marginal decrease in production, we've had a significant run-up of prices.”

Anderson says fundamentals in the cattle market look exceptionally strong, and could be even stronger next spring.

Continued price strength will depend on continued strong demand and general economic climate. “This situation will not change overnight, but it can change quicker than people want to think it can. There's still a lot of uncertainty out there with what's going on in Canada with BSE, the war in Iraq, and terrorism,” Anderson says. Cattle prices could be higher, but they sure are a whole lot better than they have been. With prices now in uncharted territory, traders are likely unsure of where things may go from here.”

e-mail: dmuzzi@primediabusiness.com