The direction of calf and feeder cattle prices will be determined by the strength of finished cattle prices and the direction of feed prices. Feed prices seem to hinge mostly on yields for corn and soybeans and on early signs of demand growth in the export market.

How much more upside is there in finished cattle markets? Prices are expected to move into the very-low $130s in November and average about $130 for the October to December quarter. Further strength is expected into March and April with highs reaching the mid-$130s.

First quarter averages are expected to be about $133 and second quarter near $132. On an annual basis, cattle prices should set new record highs this year near $126 and break that record once again in 2014 with an average near $130 for the entire year.

The most recent monthly Cattle-on-Feed report was also a casualty of the partial shutdown. However, with abundant feed resources and much lower prices, the small number of calves that are available are expected to move to feedlots and be placed at lighter weights than a year-ago when feed was high priced.  

Lower priced feed and the expectations for increasing finished cattle prices over the next four to five months should also encourage feedlot managers to feed to heavier weights.

Some brood cow producers in areas where pastures have returned are expected to begin heifer retention this fall. However, it is estimated that dry regions still represent about 45 percent of the brood cow herd that are not expected to expand until better pasture and forage conditions prevail. Overall, this means the expansion of the beef herd will remain slow into 2014.

 

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With low cattle numbers, there is considerable excess capacity in feedlots and packing facilities. Both packers and feedlots tend to have large fixed costs in facilities. The combination of excess capacity and high fixed costs means that both will tend to bid strongly for the limited cattle numbers.

Ultimately, this strong bidding gets back to the brood cow producer in the form of record high calf and feeder cattle prices. Unfortunately, these conditions also mean the margins for both packers and feedlots, while better than in the past year, will still be narrow and will likely be less than their total costs.

The beef cattle industry has been downsizing, with falling numbers for several years. Continued excess capacity likely means one to two more years of downsizing. Then, if beef cow numbers begin to slowly turn upward in 2014, downsizing of cattle feeding capacity may end in 2015 and in the packing industry by 2016.

The years beyond 2016 should provide some expansion for the beef cattle industry, but still a slow upward growth. A slow upward trend is not highly optimistic, but much better than the declining trends of recent years.

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