Cattle Prices Seen Rising by Allendale as U.S. Supply Drops

Cattle prices will jump 7.3 percent this year in the U.S., after a crop-damaging drought in 2012 led to a smaller herd, according to Rich Nelson, the chief strategist at broker Allendale Inc.

Slaughterhouses will pay $1.32 a pound on average on cash markets for spot supplies in 2013, up from $1.23 last year, Nelson said today at Allendale’s annual meeting in Crystal Lake, Illinois. About 32.95 million head of cattle were processed last year, down 3.3 percent from 2011, the U.S. Department of Agriculture said in a Jan. 24 report.

Feedlots in December bought 1.664 million head of cattle, down 0.5 percent from the same month a year earlier and the seventh straight decline, the USDA said today in a report. The average estimate of 12 analysts surveyed by Bloomberg News was a 2.9 percent increase. Allendale forecast a 3.8 percent decline.

“That’s going to set up for lower slaughter numbers through August,” Nelson said in a speech at the conference. “The supply picture is still a long-term issue, a very bullish issue, and it’s not going to change.”

Supplies of slaughter-ready animals will keep falling because the cost of corn feed surged after the drought, the worst since the Dust Bowl era of the 1930s, dried up pastures and forced livestock producers to shrink herds, Nelson said.

During the first quarter of 2013, cash cattle will average $1.29, according to McHenry, Illinois-based Allendale. After slipping to $1.28 in the second quarter, prices will rally to $1.35 in the third and fourth quarters, the broker said. Beef production is expected to decline annually through 2015, according to Allendale.

Cattle futures gained 8.9 percent last year to $1.323 a pound on the Chicago Mercantile Exchange. They are down 1.2 percent this month, closing today at $1.3075.

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