Hello, I'm Mark Pearson.
There were more signs this week that the U.S. economy is poised to take off. The consumer price index, a broad measure of inflation, grew slowly in August. That, in turn, prompted the Federal Reserve to leave a key short-term interest rate unchanged.
Moderate inflation is a goal of any thriving economy. But the Fed's main worry is that low inflation, or disinflation, will hurt corporate profits and further slow the economy. That makes interest rate adjustments a bit of a balancing act for the Fed, which is waiting for signs the job market has turned the corner.
Meanwhile, the good times already have arrived for some segments of agribusiness, especially the beef sector.
Cattle prices soared to record highs last week, and while the markets have retreated a bit since then, the outlook is definitely bullish. Yearling feeders sold for more than $1 per pound in Oklahoma City last week, while fed cattle brought $90.00 per hundredweight in Nebraska.
Iowa State University Economist John Lawrence claims the ban on Canadian beef imports is a factor in the record-breaking prices, but he says the immutable law of supply and demand is the major reason why prices are so high.
John Lawrence, Iowa State University Economist: "The producers of course are upbeat, the market is at record high prices. Not a complete surprise although perhaps unanticipated that we're at these levels. Supplies were fairly tight coming into the year and throughout much of the spring, the Canadian border closing was maybe a trigger, if you will, that really set off the forces to move us to these levels. Underlying all that, however, is demand and demand has simply been phenomenal this year."
The government released its monthly Cattle on Feed report Friday and the numbers support favorable prices for some time to come.
According to USDA, cattle and calves on feed in U.S. feedlots totaled 9.83 million head on September 1st... down 3% from September of 2002. That's the 17th consecutive month, in which feedlot population declined from the previous year. Independent analysis by Doane's projects the largest third-to-fourth quarter beef production decline on record and Lawrence claims other factors support a positive outlook for beef producers well into the future.
John Lawrence, Iowa State University Economist: "2004 is looking to be a pretty good year. We would expect January 1 inventories to be steady with a year ago and, you know, hopefully if we get rainfall next year we could begin to see some rebuilding of the herd. But that puts us on out into heifers bred in '04, calf in '05, supply in '06 or '07 before we start to see really an increase in supplies. So, we're looking at, I'm not saying record prices or $90 fed cattle until that long but supplies being tight on out into, certainly into '06 or beyond."