Robb: Cattle prices are still good for 2014
There is still optimism for higher cattle prices as beef cowherd numbers continue to shrink in North America and the country recovers from drought.
“If the U.S. economy will grow at least three percent, I believe the U.S. consumer will continue to purchase beef, rather than pork or chicken,” according to Jim Robb, director of the Livestock Marketing Information Center. “However, if the economy only grows one percent, pork and chicken are going to take more of our market share.”
Despite a slow growing U.S. economy, demand for beef is still improving at the consumer level.
“Consumption keeps going down, but consumption is not the same as demand,” Robb says. “It is really only half of the story. Demand per person is actually improving, but it has been doing that through the price side, not the quantity side,” he adds.
Beef exports have been strong the last two months, which Robb attributes primarily to Japan.
“Japan’s change towards accepting animals under 30 months of age, instead of 20, has really helped the U.S. export market,” he says. “The key is they are buying it in restaurants, not the grocery stores. Restaurants have started using sliced beef on top of their dishes instead of pork bellies, like they were using. That was a very positive switch for U.S. beef.”
With smaller cattle numbers and record high cattle prices, the U.S. consumer, like everyone else, is reacting, Robb continues.
“The domestic market will be the driver,” Robb notes. “Imports are going up a little bit. They went up this year because Australia and New Zealand have a bit of a drought. Those countries are completely forage-based, so they just start selling when there is a drought.”
It is not only the U.S. that sees shrinking cowherd numbers.
The Australian cattle herd is shrinking again after two years of growth, and herds in New Zealand and Europe are only maintaining their numbers. Although some herds in South America and Canada are seeing slight increases in numbers, Mexico is shrinking significantly.
“We usually import 1.8 million head of feeder cattle into this country each year from Mexico,” Robb says. “We are running below last year’s numbers.”
Mexico has suffered from the same drought as the one that struck the Southern Plains.
“In a two year period, comparing 2012 to 2014, we are probably going to get a million head fewer Mexican feeder cattle than in 2012. They have a much smaller calf crop, which is a big deal,” Robb states. “They have mined their cowherds to the point they no longer have the cows they had, and they sold their replacement heifers, spayed their heifers and sold their lightweight calves. They are going to have to buy U.S. beef because they have decimated their cowherd.”
Canada also has a 25 percent smaller herd than they had in 2005.
“The driver in the cattle business in North America today is the U.S.,” Robb states. “Canada and Mexico are not periphery players in the cattle business now like they were a few years ago.”
However, Robb doesn’t see beef output in the U.S. increasing before 2017.
“Look at the biology of the industry,” he says. “First we have to slow down heifer and cow kill and save back some replacement heifers.”
It looked like the industry was doing just that when USDA released their cattle inventory report Jan. 1 this year, he said. The report showed that producers had saved back 1.9 percent more heifers than they had the previous year.
However, Robb says looking at heifer slaughter numbers since then, it is obvious to him that those heifers that were supposed to be saved back as replacements have already been slaughtered.
“As of mid-year, it is clear that the beef cow herd has shrunk even more,” he says.
Beef production numbers have stayed up because higher numbers of cows were slaughtered during the drought. It is a trend that won’t continue, Robb notes.
“In 2014, cow-beef production will be down over half a billion pounds,” Robb reports. “Fed cattle beef production will be down nearly one million pounds. This is going to be a huge decline in cow and beef production in this country.”
Robb sees the 2013 to 2014 market as much different than last year.
“The fed cattle market has been on a steep incline that is going to slow down,” he explains. “Last year, we had high cow kill numbers because of the drought, not only in the U.S. but also in Australia and New Zealand.”
“If we can keep the fed cattle market at the $130 to $134 mark, like the futures are saying, it will pull the cull cow prices up pretty strongly,” Robb continues. “I think the top end of cull cow prices may reach $0.90 to $0.95 per pound, maybe as much as one dollar. For a 1,300 pound cow that amounts to $1,300.”