Sharply higher prices for feed and fuel, coupled with continued strength in the calf and feeder markets, made profits hard to come by for cattle feeders through most of 2007. It was a good year for fed-cattle prices though, and that trend looks to continue through 2008.

In mid-December, Kansas State University economist James Mintert noted that slaughter steer prices in Kansas were on track to average $93 per hundredweight or better in 2007, setting a new record high. Mintert notes that from 2003 to 2006 slaughter steer prices averaged between $83 to approximately $88, which was up from $66 to $72 during the prior four years. Based on futures prices, he says fed cattle could average near $97 during 2008.

Domestic and international beef demand has held up well, helping support prices even as production has increased. U.S. beef production for the fourth quarter of 2007 was up about 4 percent from the previous year, primarily because of heavier carcass weights. But during the same period, fed-steer prices averaged 6 percent above a year ago, and wholesale beef prices were up $1 to $2 per hundredweight. 

Beef production is likely to increase more over the next couple of months with larger numbers of market-ready cattle and heavier slaughter weights. Prices will come under some pressure, but growth in beef exports should help as favorable currency exchange rates make U.S. commodities more attractive in foreign markets.

Speaking at last month’s Range Beef Cow Symposium in Fort Collins, Colo., Cattle-Fax Executive Vice President Randy Blach told producers the historically low value of the U.S. dollar relative to foreign currencies is stimulating export demand for U.S. beef, adding that exports should increase significantly during 2008. South Korean consumers today, he said, have 28 percent more buying power for U.S. commodities than they did in 2003 when our beef was locked out. During the brief periods when the Korean market was open to U.S. beef last year, sales of just two cuts — short ribs and short plates — added $18 per head to the value of finished cattle.

The downside of the weak dollar is that international demand for U.S. grain also is high, contributing to wheat prices that topped $10 per bushel last week and corn prices that have inched upward since harvest, in spite of the largest U.S. crop ever. Demand in the export market, as well as from domestic ethanol production, is driving corn and wheat ending stocks to their lowest levels since the 1970s.

Last month, President Bush signed the Energy Security and Independence Act of 2007, including a Renewable Fuel Standard mandating production of 36 billion gallons of renewable fuels by 2022, with 15 billion gallons coming from grain-based sources such as corn. That mandate is a significant increase from the previous standard that called for production of 7.5 billion gallons by 2012, and its impact on demand will keep grain supplies tight and prices high through the foreseeable future.