Given the small size of the calf crop, this would bolster calf prices. A second condition beef producers would like to see before expanding is some assurance that feed prices will have an overall moderation in coming years, not just a one year decrease.

USDA found evidence among producers that they were getting positioned to begin expansion. The number of beef heifers being saved for herd replacement was up two percent.

There is a general feeling that cattle prices could be very strong in coming years due to small per capita beef supplies. If weather moderates, several profitable years are anticipated for cow-calf producers.

Finished cattle prices should strengthen into the spring as beef supplies drop. These smaller beef supplies are related to both a small cow herd which means a small number of calves available and to the pace of feedlot placements that dropped sharply beginning last July due to higher feed prices resulting from the drought.

Placements from July through November last year were down 12 percent. This will create a period of reduced marketings from feedlots in the late winter through mid-summer.

In addition, the U.S. economy may be somewhat stronger than some are anticipating which will be supportive to finished cattle prices as well.

Recent futures price declines, which are suggesting late winter and spring prices in the low-to-mid $130s, may have been excessive.

Smaller finished cattle supplies due to the small placements last summer and fall provide the opportunity for finished cattle prices to rally back toward the mid-to-higher $130s this spring and early summer.   

Prices are expected to be in the higher $120s this summer and then strengthen in the fall to the low-to-mid $130’s.

If weather helps restore feed and forage supplies this summer, a more aggressive expansion of beef heifers should be anticipated beginning in the fall of 2013 and continuing into 2014. If this does occur, it will set the stage for very strong calf prices and new record high prices for finished cattle in 2014.

If crop and forage production returns to near normal, the cattle industry is poised for multiple years of favorable returns and expansion. However, everyone watching the “Drought Monitor” knows that much of the country has not yet returned to normal weather conditions.  

Beef cattle producers will be poised to expand when weather conditions improve. Unfortunately for the beef industry, both poultry and pork producers are waiting at the starting line as well. Those industries can expand production much more quickly and will extract market share from beef during the period from late 2013 to 2016.