Can Smaller Meat Supplies Support Record Livestock Prices?

By Wilson, Jeff | Futures (Cedar Falls, IA), March 1989 | Go to article overview

Can Smaller Meat Supplies Support Record Livestock Prices?


Wilson, Jeff, Futures (Cedar Falls, IA)


Can smaller meat supplies support record livestock prices?

One variable about 1989 U.S. meat markets is certain: Total red meat and poultry supplies will be down somewhere between 1% and 3% from a year ago. But, beyond that, the 1989 price outlook for cattle and hogs is fuzzy and hotly debated.

Total U.S. meat consumption hit a new all-time high of 220 lb. per capita in 1988 and has been rising an average of 1 lb. per year since 1973. But analysts are beginning to worry now that a further increase in total meat consumption may be difficult to attain, even though promotional dollars from producers appear to be helping red meat demand.

The year-to-year decline in total meat supplies will mark only the second such occurrence this decade and is a major supportive factor in the bulls' arguments for new record cattle prices this spring and a rebound in hog prices the second half of the year.

Most cattle bulls also hang their hats on the smallest cattle inventory since 1962. The number of mother cows may hold steady, indicating no significant increase in feeder cattle is likely until 1991.

Hog traders note that a 2% decline in the hog breeding herd and an increase in farrowing intentions means some gilts will need to come out of the slaughter mix. Some economists expect a decline in marketings beginning as early as April as the smaller fall pig crop hits the market.

Warm weather early this year could be a potential negative for hog and cattle prices. The unusually warm weather will improve weight gains and limit death losses. Marketing fat livestock will restrict rallies, sources warn about overfeeding.

The 1988 drought played an important role in keeping livestock expansion in check. While history says back-to-back droughts have never happened in the Corn Belt, pasture conditions have been hurt by poor weather in consecutive years, notes Tom Morgan, president of Sterling Research Corp. in Arlington Heights, Ill. If the Northern Plains does not receive moisture-replenishing precipitation before March, then feeder cattle could find fewer buyers this season, especially at current high breakeven costs, Morgan warns.

Poultry's effect

Poultry prices are likely to be steady to weak with expected increased production. Softer poultry prices will further widen the spread to retail beef and pork prices. How consumers react to higher retail prices is always very difficult to predict, analysts warn.

But Ernie Davis, livestock economist at Texas A&M University, says the wide spread between beef and poultry prices will not be as great a negative influence. Record high retail beef prices have already run off price-conscious buyers, and all that's left are hard-core beef buyers.

The record-long U.S. economic expansion makes some analysts very nervous about higher prices if a recession materializes this year.

But Mike Sands, project leader for the Western Livestock Marketing Project in Denver, says the advent of an economic downturn could actually stimulate red meat demand as families shy away from big-ticket purchases such as cars, televisions and furniture and go out to eat instead.

Technical trader and independent broker Gary Ott in Grand Rapids, N.D., says the inability of the cattle market to rally earlier this year and the fact the cycle high is due before the end of April suggest the cattle market may once again top in a year ending in 9. Ott looks for prices to trend lower into a fall low that could mark the 3 3/4-year cycle low. Cattle price action is similar to what unfolded in 1981 and 1985, he says.

Glen Ring, editor of Commodity Closeup in Cedar Falls, Iowa, says the December high in the hog market looks like the midpoint of the 5 1/2-year cycle that would project a downtrend in prices into late 1990 or early 1991.

Jens Knudson, economist at the American Meat Institute (AMI), says the demographics of the American population and improved nutrition education will keep red meat demand in an uptrend into the 1990s, especially with more exports.

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