Purdue News

October 29, 2002 Livestock markets could run with the bulls in 2003, economist says WEST LAFAYETTE, Ind. – Livestock producers might claw their way out of the bear market's grasp and feel the bull market's hot snorts next year. Cattle markets appear ready to rebound, with hog and poultry price prospects also improving after a rough ride, said Chris Hurt, a Purdue University Cooperative Extension Service commodity market analyst. Hurt expects livestock prices to rise in the first quarter 2003, climbing even higher the second half of the year. He attributes the turnaround to industry efforts to better bring meat supplies in line with demand, the impact of higher feed prices on livestock production and the gradual economic recovery after last year's terrorist attacks. The price outlook is welcome news for an industry that's lost money all year, Hurt said. Of the $10 billion reduction in income U.S. net farm income for 2002, $9 billion is animal-related. "It looks like what we'll see for all animal species is a considerable improvement from a very dismal 2002," he said. "That improvement is going to start as we get into 2003. It may be a very good year profit-wise, and should be better in the second half of the year than in the first half." Hurt projects an $8 to $10 jump in finished cattle prices in the next six months. Liveweight hog prices, currently languishing around $25 a hundredweight at terminals, will take longer to recover, but market trends suggest prices could reach the low $40s by next summer. And poultry supplies are beginning to tighten, a signal that prices will go up. The quickest and most significant recovery, however, will occur in the cattle sector, Hurt said. "We've traded finished cattle down in the low $60s for a good bit of the summer, and then moved up into the mid-$60s," he said. "We think we'll see prices move on up into November and, especially, December, to close near the $70 mark. "In late March or April 2003 prices could move to their spring highs of around $74-$75 per hundredweight. That would be quite encouraging if we see that." The livestock industry was hit particularly hard in the aftermath of the terrorist attacks. The economic domino effect led to an oversupply of meat products, which, in turn, pulled prices down. Many producers decided to wait out the markets, which exacerbated the problem. "The whole meat industry has had a difficult year in 2002," Hurt said. "That began after Sept. 11, 2001, simply because travel was down considerably. This hurt the beef market a lot. The general tone of the economy was not real strong and that affected consumption patterns, especially on higher-end meat cuts. We then saw a vast decrease in prices, with producers holding onto animals, resulting in heavy weights and burdensome meat supplies. Beef supplies are up about 4 percent this year, with pork supplies higher by nearly 3 percent." Higher feed costs tied to a drought-plagued crop season and subsequent rising grain prices have motivated beef producers to more aggressively market cattle. With fewer animals going into feedlots, cattle weights are coming down, Hurt said. "The hog situation is similar to cattle, in that supplies are going to drop more rapidly than we thought," Hurt said. "Because of high feed prices and low hog prices this past summer, there was quite a bit of liquidation both of the breeding herd and the market herd. That has helped clean up the supply problem. By November or December we should see pork supplies almost unchanged from a year ago, and then begin to drop as we get into 2003." Hurt advised producers to continue to monitor animal weights. He also recommended keeping only the most productive animals. "The first thing I'd say is to keep weights moderate for finished cattle," Hurt said. "This has been the single biggest problem for the industry. It's a self-inflicted wound when we're adding 3 percent or 4 percent to the weights of those cattle. With the higher grain prices there will be much less incentive to put on that additional weight. "Also, the margins have been tight for all livestock species, so producers should look at each animal and cull the lowest productive animals. With prospects for a return to much better margins in 2003, producers should continue to maintain their breeding herds and, in the case of cattle, some expansion in brood cow numbers may be considered." Writer: Steve Leer, (765) 494-8415, sleer@purdue.edu Source: Chris Hurt, (765) 494-4273, hurtc@purdue.edu Related Web site: Purdue University Department of Agricultural Economics Purdue News Service: (765) 494-2096; purduenews@purdue.edu To the Purdue News and Photos Page