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Cattle Prices 2006: What to Expect

Posted Sep. 30, 2005

There are signs that the cattle cycle will be alive and well in 2006, with prices for all classes of cattle moving downward over the next few years. This price decline holds true to the cyclical nature of the cattle market. Also, note this decrease in cattle prices closely corresponds with an increase in total cattle inventory. What does that mean?

This period could be called a good news/bad news situation for the cattle market in 2006. The good news is that cow-calf producers should still be in good position with calf prices in the $100/hundredweight to $110/cwt range for 500-550 pound steers, so it should be a "seller's market" for calves (assuming corn is in the $2 to $2.50/bu range). With the total cattle inventory in the 96 million head range, cow-calf operations should be profitable during the next two to three years, perhaps even longer. The bad news is prices will be declining from cyclical highs in the cattle cycle. Producers need to analyze their operations, paying close attention to the costs and production of their herds.

While cow-calf producers still are going to enjoy a few years of good prices, this period will provide challenges for stocker operators. The margin for these operators will be squeezed by the high cost of cattle and a declining market during the time they own the cattle. These challenges will force operators to be creative in the buying and selling of their cattle and to analyze the viability at shorter turns with the cattle to minimize risk.

With average feeder cattle prices expected to be in the $90/cwt range over the next two to three years (assuming corn is in the $2 range), stocker operators should consider positioning themselves to buy replacement cattle at seasonal lows.

This should be a challenging period for those of you already in the cattle business. Consumer demand for beef is still good, and overall prices are good for the producer. To individuals considering getting in the cow-calf business: Carefully analyze your investment to determine your return over the life of that investment.

Please give us a call at (580) 224-6500 if we can help you in this process.

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