Last week’s October Cattle on Feed report showed what many expected: that feedyard placements continued to decline through September. In fact, placements into feedyards with 1,000-head capacity or more fell 19 percent below those during September 2011.

Primary reasons for the short placements, which follow two months of declines, include a shortage of available feeder cattle, as many shipped to feedyards early due to drought. Also, the high cost of gain in feedyards is pushing available cattle toward winter grazing.

In a podcast from Purdue University, Extension economist Chris Hurt, PhD, says the short placements, resulting in cattle on-feed numbers 3 percent lower than one year ago, support the expected reduction in per capita beef supplies of about three percent through the first-half of 2013. As a result, Hurt expects finished cattle prices to continue to rise this year and into 2013.

Finished steer prices averaged near $120 per hundredweight during the third quarter, Hurt says, and are likely to average near $125 for the final quarter of 2012. For the first quarter of 2013, Hurt expects prices to increase to around $130 per hundredweight, with spring prices potentially peaking in the high $130’s and averaging in the mid-$130’s. Next year, Hurt expects record-high fed-cattle prices averaging in the low $130’s for the year. Calf prices however, have been slower to recover due to high cost of gain in later production.

Domestic beef demand, meanwhile, remains strong, according to University of Missouri economists Ron Plain, PhD, and Scott Brown, PhD. Retail beef demand during August was up 1.5 compared with compared to a year ago, and April is the only down month for domestic beef demand so far this year. Export demand however, has been down every month this year and dropped 14.4 percent in August compared with August 2011.

The average retail price for USDA Choice beef during September was $4.94 per pound, which was up 2.7 cents from September 2011, making for the 31st consecutive month of year-over-year higher beef prices, Plain and Brown report.

Boxed-beef values have moved higher as supplies tighten, with the Choice cutout finishing last week averaging $196.68 per hundredweight, up $5.35 from a week earlier and up $12.80 from a year ago. The Select carcass cutout was up $2.90 from the previous week to $180.37 per hundredweight. Plain and Brown note that Friday’s Choice-Select spread of $16.23 per hundredweight was the widest since July 6. On Monday this week, the Choice cutout gained another $1.67 to average $198.35 per hundredweight.

Hurt says beef cow numbers are likely to be two to three percent lower in the upcoming January inventory report, and cow numbers are likely to decline until feed and forage supplies improve. The feed situation could improve with a better grazing season and improved corn and soybean harvests next summer. If feed supplies improve significantly, Hurt says we could see a robust price recovery for calf and feeder cattle prices and a shift toward beef-herd expansion during the second half of 2013.