Live cattle prices are poised for a
strong year-end rebound following the steepest 30-day decline since the
2003 discovery of mad cow disease in the U.S., according to a new
report produced by CoBank's Knowledge Exchange Division.
The
report, titled "What's Behind the Cattle Market Price Collapse?," cites
three factors for the sudden price decline in August and September:
feedyards with an overabundance of unusually heavy fed cattle;
exceptionally wide price disparities between beef prices and those of
chicken and pork, which increased
consumer purchases of chicken and pork at the expense of beef; and the
market's psychological overreaction to the abrupt price drop, which
accelerated the decline.
"The price drop was very sudden --
dropping $26 per hundredweight in 30 days -- and clearly caught the
market off-guard," said Trevor Amen, animal protein economist with
CoBank. "But we believe the causes of the drop were temporary, which
sets the stage for a price rally. In fact, most cattle future contracts
have posted near limit up moves over the past several days, perhaps
indicating that the rally has already begun."
The near-term
outlook for beef demand calls for continued growth during the next four
to six months, both domestically and overseas. According to Amen, the
expected rally in cattle prices will be triggered by the normalization
of price disparities between beef and chicken and pork, which will
bolster consumers'
purchases of beef. As demand grows, wholesale/box-beef prices are
expected to head higher, leading the way for a near-term rally across
the entire beef complex.
However, the longer-term outlook for
2016 and 2017 still calls for cattle prices to trend downward, pressured
by an anticipated increase in supply. Herd rebuilding efforts are
expected to boost beef production starting in late 2016 and accelerating
in 2017 and beyond. After rallying during the closing months of
this year, cattle prices are expected to trend downward from late 2016
and through 2017, off their cyclical peak in late 2014.
CoBank's
Knowledge Exchange Division is a knowledge-sharing practice that
provides strategic insights regarding the key industries served by
CoBank. Knowledge Exchange draws upon the internal expertise of CoBank,
deep knowledge within the Farm Credit System and boots-on-the-ground
intelligence from
customers and other stakeholders to enhance the collective understanding
of emerging business opportunities and risks.
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