Fed cattle supplies short--retail beef higher

This week, the first week of fed cattle trading after the Labor Day holiday, the tightness of fed cattle supplies became apparent, as prices held steady. Futures reflected what the USDA Cattle-on-Feed report shows and feedlot records bear out--there just aren't enough cattle out there to fill the feedlots or fully satisfy retail demand.

This is bound to make fed cattle prices go up at the feedlot as the fall wears on, which in turn will be reflected in higher retail beef prices at the meat counter. It is classic supply-and-demand economics in action.

Maybe consumer beef demand will drop to meet the expected supply, but probably there is demand available at a still-profitable level that will be unable to be fulfilled with domestic beef. The supply situation will ease as the new year 2009 approaches, but will tighten up again after the spring cattle run is over.

This is because many cows were slaughtered due to drought and will be not be having calves this year. Industry fundamentals, including high corn prices, are preventing widespread holding back of heifers to breed, so an expansionary phase has not begun yet.

That's why those steaks will cost you more at the meat counter.