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Saturday March 24, 2018

Where are beef prices heading?

Just five years ago, the American beef cow herd was at its lowest size in half a century. Battered by withering years-long drought, ranchers had sold cattle off in order to weather the lack of feed and grazing, resulting in a herd size at 1950 levels.

In testament to the old adage about coming down and going up, today USDA reports cattle farmers are on a steam-up that's nearly unprecedented in pace. The total expansion that's taken place since 2014 is the largest breeding-herd size increase the country's experienced since 1970. The number of cattle and calves USDA counted on Jan. 1 is 2 percent higher than a year ago, and the number of breeding cows, those available to produce more calves, is 3.5 percent higher. Total beef-cow numbers are now at their largest point since 2010, and the number for the Central Plains region which includes Nebraska are up 22 percent vs. 2016.

Naturally, that surplus of female cattle ready to have calves portends a higher supply. USDA estimates last year's total calf crop will be up 3 percent over the year and up 4.5 percent over the year before that. And because those beef cows take two years to produce an offspring that salable as a beef animal, that increase in breeding animals is calling for expectations for incease in beef supply well into 2018 and even 2019.

Does all the promised supply increase mean we are looking at a coming beef price crash? Live cattle prices continue to be pushed downward by higher inventories and resulting larger meat supplies. Beef has followed all livestock, poultry and milk prices that have retreated in response to larger supplies. Since prices peaked in 2014, U.S. beef, pork and chicken production have all increased quicker than the number of consumers to buy it. Combined with the effects of a strong dollar on export sales, the result has been a sharp reduction in prices. Projected prices for 2017 are 28 percent below the 2014 level for fed cattle. However, projections by University of Missouri expect the price decline to be stable, albeit falling, and not turn into a wholesale crash. Retail prices, in particular, should stabilize. Retail meat prices have been declining, Missouri reports, though not as rapidly as wholesale and farm meat and animal prices. Retail prices tend to exhibit less volatility than other segments of the marketing chain. When meat supplies are large, farmers tend to take a smaller percentage of consumer dollars spent for meat.

USDA's latest projections call for wholesale beef cutout values were already being driven upward toward the end of the first quarter by the annually anticipated tendency for both Choice and Select beef cutouts to gain momentum heading into the spring grilling season. At this time, the market transitions from lower-valued end cuts to more expensive middle-meat cuts. Select cutout values were gaining as a result during March; however, wholesale boxed beef cutout values began showing signs of weakness in late-March.

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