The rally in fed cattle prices is long over-due, and finally bringing some holiday cheer to feedyard managers. Prices for Choice fed steers are up 13 percent over the past 6 weeks, with last week’s trade at $77.50. Through Wednesday of this week, feeders were asking $78 to $79, with ideas the market will reach $80 by year-end despite the holiday-shortened kill for the next two weeks.

Boxed-beef prices reached new recent highs this week above $129, which supports cattle feeder ideas that packers are willing to pay up on live cattle. Declines in slaughter numbers and strong beef demand continue to be the driving force behind the market.

Cold weather throughout much of cattle feeding country, and feedyard showlists that are more current than earlier this fall have provided feeders with marketing leverage. Both of those factors provide short-term support to the market, but the longer-term outlook is also positive.

Throughout most of 2000, cattle feeders have struggled with large numbers of market-ready cattle and record large weights on cattle slaughtered. But the coming year promises to bring lower beef production due to tighter supplies of available cattle. Jim Gill, market director for the Texas Cattle Feeders Association (TCFA), says beef production will be near 26 billion pounds in 2001, 3.1 percent below 2000.

“This will be the first decrease in beef production since 1993 and will put annual per-capita beef consumption around 66.5 pounds on a retail weight basis.” Gill says the drop in beef production will stem mainly from the expectation that average carcass weights will fall back from the record 745 pounds in 2000. “We placed a lot of lightweight calves the last half of 2000 and particularly the last three months. Lighter weight calves produce lighter weight finished cattle, which yield lighter weight carcasses.”

Another significant factor in the direction of cattle prices during 2001 is the expected beginning of expansion of the nation’s cowherd. Many analysts expect ranchers to begin keeping more heifers for breeding rather than selling them as feeder cattle. That would further reduce the available supplies of feeder cattle, with a corresponding decline in available slaughter cattle.

Some signs of herd expansion are expected to be revealed in late-January when the U.S. Department of Agriculture releases heifer retention figures in its annual cattle inventory report.

Ranchers are finding plenty of financial incentive to expand their herds through the rises in feeder cattle prices. The average price of 500- to 550-pound steers will be over $1 for 2000, which is up from 89 cents in 1999, and 84 cents in 1998. And prices are likely to move higher with fewer heifers available to fill feedyard and packer supply line.

Most analysts expect fed cattle prices to reach the $80 level soon, which will be the first time since May 1993. Such prices are good for feedyards, which have struggled with heavy losses during much of 2000. The downside to tight supplies and higher prices is the impact created on consumer demand. Lower beef production will push retail prices higher in 2001, opening the door for more competition from poultry and pork.