Low heifer retention, strong export markets show promise for calf producers
According to UW Extension Livestock Marketing Specialist Bridger Feuz, this year cow/calf producers have held back four to five percent fewer heifers than the average number of females retained.
And, he says that’s compared to the last few years, when producers were already holding back two to three percent fewer heifers than before.
“Nobody can blame producers for not retaining heifers with our prices, but we’re looking at an even smaller calf crop next year, based on the continuing decline in cow numbers and holding back even fewer heifers,” he says, adding that declining supply is good news for cow/calf producers in terms of future beef prices.
Looking to cattle on feed, Feuz notes that the U.S. is feeding significantly less cattle, on average, than the 2005-2009 average.
“You can see the affect that calf prices this fall had on cattle on feed numbers, because nobody held calves for summer grass – they’re all going off the place. We came up to that higher average number of cattle on feed last fall because of prices, but that’s really a false sense of increase because it just means there will be less cattle on feed this summer,” he explains.
For several years, even as cow numbers declined, beef production still increased because of larger carcass sizes. Feuz says that will change dramatically.
“Quarterly production in 2010 was above the average, but 2011 is projected to be below the 2005-2009 average, and 2012 is expected to be significantly below that average,” says Feuz. “We’ve actually gotten to the place where we’ve reduced the cowherd size enough that, even though we’ve had gains in beef production through carcass size, we’re not able to keep up with that, and we’ll produce less beef in the next couple years.”
Feuz says that the U.S. population is still growing, so even if demand remains constant, beef prices should be very strong through the next couple years. He adds that poultry is projected to increase in production during that time.
“In 2012 we’ll see an increase in terms of total protein supply, and poultry will try to take the larger share away from the beef business,” he predicts.
While the U.S. cattle inventory continues to decline, and more beef is produced per animal, Feuz says feeder supply remains tight.
“The interesting thing I’m not certain of is that we may have a little excess capacity in feedlots. Feedlots are still operating somewhat on the assumption that cow numbers will go back to what we’ve seen, but, based on carcass sizes, I doubt we’ll see cow numbers as high as we have seen in the past,” he says.
Regarding exports and how they influence U.S. markets, Feuz says the return of Mexico, Canada, South Korea and Japan after the BSE incident in 2004 have helped cattle prices in this country.
Concerning imports, Feuz says from 2004-2008 the U.S. imported 150 million more pounds of beef than it exported, and in Fall 2009 the U.S. became a net exporter for the first time in a long time.
“Last year we drifted around, but starting in August we are now exporting almost 100 million more pounds per month than we import, so that picture has really changed for the positive,” he states. “Not only is there a solid demand domestically, but now the export market has increasing demand, which really helped calf prices.”
Pre-BSE, Feuz says that, in terms of dollar value, the U.S. was already a net exporter at nearly $2 billion.
“Even back then, when we were importing more pounds of beef, the value of the beef we exported was worth almost $2 billion more than the beef we imported. Right now the value of beef we export is $500 million more than we import, and this year that number should go up even more – closer to $1 billion,” he says.
He explains further that the beef imported by the U.S. is low-cost lean beef to lean out grinds, while the exported beef is higher-value products and variety meats that lack a domestic market.
“The export market is key to maintaining or improving current beef prices,” he notes. “Currently we’re a net beef exporter, which is a good thing.”
“The fundamentals would indicate price levels next fall as good or even better than 2010, as much as $5 to $10 per hundredweight better than this year. There have been predictions as high as $1.70 per pound for five-weight calves, but that’s a hard number to live up to, and I think there are too many variables to be convinced $1.70 will be the one to shoot for. I think $5 to $10 more this year is reasonable,” projects Feuz.
However, he says that prediction comes with a couple caveats, including continued economic recovery.
“If high commodity and fuel prices drive the economy back into recession, all bets are off,” he says. “It’s hard to predict what they would do to the final outlook. The other thing to watch is input prices – watch where corn prices end up.”
“Fundamentally, we have more people in the U.S. than last year,” he says. “Demand is relatively flat, and we’re producing less beef, so it’s difficult to see how prices could not be better this fall than they were last fall.”
“Looking at the futures market, if you’re deciding if you want to play that game, I think you will see some corrections there, and it might not necessarily maintain the current levels,” cautions Feuz. “Come this fall, the fundamentals of supply and demand will drive the market again, just like they did last fall.”