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Coming soon: record calf prices
In the last few weeks, fed steers have been at $1.10 a pound, stocker cattle at $1.25 a pound, and perhaps most notable are the 550-pound calves at or over $1.50 a pound. From some standpoints, it's the golden age of the cattle industry!
But it is happening mostly for one not-so-great reason: Cattle producers keep exiting the business in droves, and the nation's cowherd shrinks to the lowest level in decades – 32 million mama cows. It's a story that is happening pretty much around the world, wherever cattle are raised and fed.
It's really the ultimate good news/bad news story that was told at the CattleFax outlook seminar at the Cattle Industry Annual Convention recently. Cattle prices are good, but it's because a lot of herds died to get us here.
Here are the beef market highlights from the CattleFax staff.
All remains bullish on the supply and demand side of the industry. CattleFax CEO Randy Blach told convention goers that global economic recovery is happening faster than in the U.S., with the Korean stock market up 24% last year. The U.S. had a 20% improvement in beef exports, and demand was up 7% due to the strengthening economy. Feedlot profits were the best since 2003, packers had an excellent year, and for cow/calf producers, payday is just beginning.
Producers need to consider ways to reduce risk in the corn market, CattleFax's Mike Murphy told the group. It's too volatile now, and prices for feed are too high not to manage in a way that will protect you from further price advances. CattleFax thinks corn can, and likely will, trade at $7.50 or higher on a spring or early-summer rally.
“We need a good growing season,” Murphy notes. “And we need 4 million additional acres of corn. Anything short of that is not enough.”
Despite slow growth in the U.S. economy, per capita income worldwide is now back to prerecession levels, said Brett Stuart. In China, per capita income was up 8% last year. Korea has become a huge buyer of U.S. meat, partly due to foot-and-mouth disease there. They've incinerated 2.3 million hogs and several hundred thousand cattle as a result.
“Prices for feed are too high not to manage in a way that will protect you from further price advances.”
“If we can get back to pre-BSE exports to Japan, it will add $40 a head to our cattle markets,” Stuart said.
To begin to grow U.S. herds, we need to retain cows and keep more heifers. High cattle prices are working against that, said Kevin Good. He thinks cull cows could bring up to 70¢ a pound this year, a record, and some small farmers may cash in, further depleting the breeding herd. Per capita beef supply in the U.S. will be down around 55 pounds in 2012, the lowest in decades.
“A lot of times in market years like this, actual prices tend to disappoint,” said Good, as cattle go to bigger weights and the backlash against higher grocery store prices is felt.
Good expects fed cattle prices to average $104 per cwt this year, $10 higher than last year. Feeders (750 pounds) will be $120 per cwt, and calves (550 pounds) will average $140 per cwt, with highest prices between now and grass season.
“These are conservative estimates,” Good said. He expects feedlots to struggle to make money this year, and stockers will make a little, but cow/calf may be the most profitable ever.
Over the next couple of years, Blach said fed cattle prices will range from $94 to $120 per cwt, and calves will range all the way up to $175.
“Equity returns to the cow/calf producer,” he said. It's the key to beginning the process of rebuilding the beef herd.