Here’s Why Fed Cattle Prices Could Reach $180 by 2024
By Tom Brink, Drovers
January 12, 2022
Tom Brink is the CEO, Red Angus Association of America.
The recent jump in fed cattle prices to $140/cwt. is a harbinger for the future. Evaluating market fundamentals has led most analysts to project a stronger price trend over the next several years. But just how high could prices go? Answering that question with precision is not an easy task. However, if we study market patterns over the last 30 years, several valuable clues emerge.
The first major point is that fed cattle prices have been and remain in a long-term uptrend. Higher prices materialize due to inflation, nominal demand growth, new product development, larger exports and multiple other factors. It may not seem like it in the short run, but the natural direction of the market is higher, particularly over longer periods of time. Proof of that statement is found in the fact that fed cattle prices averaged $68/cwt. during the 1990s and only $91/cwt. in the first decade of the 2000s. The accompanying chart depicts this uptrend, though it is important to realize that long-term market patterns are often obscured by short-term volatility.
Point two is that cattle and beef supplies ebb and flow, which is one of the main reasons prices oscillate above and below the trendline. For example, in 2014 and 2015 when beef supplies were particularly tight, fed cattle sold $34 to $41 above the trendline. This aberration happened for a good reason: Cattle were scarce. That two-year time period produced the highest U.S. fed cattle prices on record, $154 and $149, respectively. Short-term supply/demand conditions caused the market to significantly over-perform its longer-term equilibrium as measured by the trendline.
Next, consider 2020 when the average fed price dipped $18 below the trendline...
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