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Purdue Economist Says Rising Cattle Prices Will Continue

Following substantial declines in July and August - USDA has confirmed that placements into feed lots dropped sharply in September. As a result - cattle on feed numbers are now down nearly three-percent. Purdue University Extension Economist Chris Hurt says drought has been particularly cruel to the beef cattle industry. Drought conditions still cover 62-percent of the lower continental U.S. today. The central Great Plains is now the epicenter - with 95-percent of the state of Nebraska in the worst two drought categories. Six other states - Kansas, Oklahoma, Colorado, Wyoming, South Dakota and Iowa - have more than 50-percent of their area in the two worst categories. These states represent 30-percent of the nation's beef cows. While the eastern Corn Belt and Southeast have seen improved moisture conditions - Hurt notes the drought is expected to continue into the winter - possibly intensifying - for the area of the country that is west of a line roughly from Chicago to Lubbock. Hurt says beef cow numbers will likely be two to three-percent lower in the upcoming January inventory report. He says the implications are for continued cow reductions until feed and forage supplies are restored.

Kansas State University says high feed prices, a small calf crop and excess capacity in feedlots have all contributed to feedlot losses of over 200-dollars per head. Placements of calves in September were down 19-percent from a year ago.

Hurt says the cattle on-feed numbers were supportive to the overall expected reduction in per capita beef supplies of about three-percent through the first half of 2013. As a result - finished cattle prices are expected to continue to rise this year and into 2013 - with record-high cattle prices in store. Steer prices averaged near 120-dollars per hundredweight for the just completed third quarter. For the final quarter - Hurt says prices are expected to near 125-dollars for the final quarter of 2012 and 130-dollars in the first quarter of 2013. He says spring prices may peak in the higher $130s - with the second-quarter average in the mid-$130s.

Calf prices - according to Hurt - will be slower to recover because of high feed prices. He says feed prices may start to moderate in a small way with lower soybean meal prices in the spring of 2013. That's assuming reasonable production in South America. He says further declines in feed costs could occur with a better grazing season in the spring and summer of 2013 - and a return to larger U.S. corn and soybean crops next year. Hurt says a more abundant feed supply in the second half of 2013 could result in a robust price recovery for calf and feeder cattle prices. Replenishment of feed supplies would also begin beef cow expansion in late 2013.

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