The year of the heifer
It’s going to happen in 2014, say the market specialists at CattleFax.
Over the last 8-10 years, while there have been plenty of cattle price signals to expand the beef herd, two things have conspired against it: long-term drought, and high feed costs. Both are finally starting to work in favor of cattlemen.
"Costs of gain in feedlots have gone from over $1 a pound to under 80¢ in some cases," says Lance Zimmerman of CattleFax. That's because corn prices have dropped from $7 a bushel a year ago to about $4 now. That alone reduces the cost to finish a steer by about $200, Zimmerman says.
It means feedlots can bid higher for feeder cattle, a signal that gets passed back to cow-calf producers to save heifers and expand the herd.
The long-term drought in the Plains region is also showing signs of abating, meaning lusher grasslands for the expanding herds. "We hope for a day when we can talk about the cattle markets without first talking about the drought monitor index," says Zimmerman.
Actually, there's been some heifer retention in non-drought areas since about 2010, CattleFax analysis indicates. It's been modest enough, and cow culling rates high enough, that it hasn't nudged total cattle inventory, still at the lowest level in 60 years. "We think we could see heifer retention up about 140,000 head in 2014," Zimmerman says. "And we project it to grow another 250,000 head in 2015. That will put us firmly in beef expansion mode.
"In the past few years, Mother Nature never gave us a shot to expand."
Now, says Zimmerman, we're at about 29 million beef cows in the U.S. Three years ago, that number was 30 million. "We project it will take us five years to get back to 30 million. The reason is because of the cash outlay. It takes a $2,000 investment to add a female to a herd. That's expensive. Ranchers are looking for sure signs that we're turning weather conditions before they justify it," he says.
In the meantime, cattle slaughter levels will be lower as heifers are retained. That could go on until 2017 or even beyond, says Zimmerman, perpetuating the current high cattle prices. "We have a disadvantage to the other meats when it comes to expansion," he adds. "It takes us three years to expand beef production, from the time you retain a heifer until her calf is harvest weight. Compared to beef, the pork and poultry people can practically flip a switch." The chicken industry can go from hatch to harvest in about six weeks, he adds.
In 2014, CattleFax projects poultry production will grow by 2.6 pounds per person in the U.S. Pork will hold steady (growth in 2015), while beef consumption will drop by 2.4 pounds to about 55 pounds per capita. "Beef demand could be down in response to still-sluggish consumer income growth, and cheaper competing meats," says Zimmerman Still, he says, total consumer spending on beef is in record territory at $275-$280 per person per year, up from $210 in 2010.
More record prices
Expanding beef exports have taken up about six pounds worth of the slack in domestic consumption, Zimmerman points out. And exports have more room to grow. While about 20-22% of pork and poultry are exported, only 10% of beef is. If the beef industry can open the China market, that will help.
Cattle markets should stay strong in 2014, he concludes. Weaned calves (550 pounds) will average $1.85 a pound, up from $1.75 in 2013, as lower costs of feedlot gain get bid backward through the calf supply chain. Feeder cattle (750 pounds) will average $1.64, up from $1.50. And finished steers at harvest weight will bring $1.30 or more, with highs near $1.40 in the spring of 2014. All of those prices will set new annual average records for beef.
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Tips for each market segment
CattleFax offers this outlook and advice for the cattle industry segments:
Cow-calf: Historically strong prices for next 3-4 years. Consider adding to herd by buying from reputable heifer development suppliers.
Stocker-backgrounder: Profitability will be squeezed by much competition and high prices for calves through at least 2015. Look for calf value opportunities outside of the normal green grass demand in spring.
Feedlot: Lower feed costs have put this segment into solid profits after several years of breakeven. With record fed cattle prices looming, now the trick is to manage feed cost risks. Use quality programs (such as Certified Angus) to enhance margins.