2012 presents beef opportunitiesWritten by Christy Martinez
Ag economist Jim Robb, who works with the center, was present at the 2011 Range Beef Cow Symposium in Mitchell, Neb. to give his organization’s opinion of the current beef herd inventory, its causes and effects and where it’s headed.
“We recently went through the worst economic interaction since the Great Depression,” said Robb. “Things have changed in the consumer part of the picture, and since the recession economic growth in the U.S. has been very slow, and the consumer is spending less.”
He said time will tell how the recent spending on Black Friday during Thanksgiving weekend will affect consumers.
“They dipped into their savings more than they have in quite a while,” he noted. “Even though the recession’s over, per capita disposable income has not gone up – it’s actually gone down compared to a few years ago, so consumer don’t feel very good, and that’s part of the long-term economic environment in the United States.”
When looking at livestock production, Robb said volatility in grain markets is a reality to learn to live with.
“The cost of gain in the feedyard has changed dramatically, and we think permanently. We think the high cost of feedstuffs is with us to stay. The range in which prices will operate is much different than a few years ago,” he explained.
Looking at the rest of the world, Robb mentioned the estimate that says there will be a third more people in the world by 2050, and most of that growth will be in India first, China next and the U.S. in third place.
Robb noted how incomes are rising in the Asian economies.
“To fulfill the needs of one-third more people, we’ll need to double animal-based protein, and not only is the population going up, but their incomes are, too, and they’ll demand more animal-based products,” he said. “It will take more of everything – more inputs, more fertilizer, more grain – and everything needs to be more efficient than we’ve ever done it before,” he said, adding, “It makes one very optimistic about the long-term animal-based protein from a world perspective.”
Robb added that, although the United States doesn’t have the largest cowherd, it’s still the largest beef-producing country.
“Brazil is a major competitor, but they export mostly manufactured beef items, so they don’t compete with our choice beef, and the country is growing and consuming more beef production at home, so the window of opportunity is pretty good for the U.S.,” he said.
Robb noted that, worldwide, Canada is one of the only countries that is stabilizing its cowherd, although it is still much smaller than a few years ago.
“Australia is also stabilizing, as they seem to be through their drought. Mexico’s cowherd is still declining severely, and the Argentine cowherd is shrinking because of policy and they continue to take pasture and put it into soybean and corn production,” he explained. “The Russian cowherd, which is dependent on dairy cows, is also shrinking.”
Of the cattle cycle of years past, Robb said, “The ups and downs aren’t what they used to be, and the length is different, and the duration and amplitude is very hard to specify. This is not the industry it was a few years ago, and it’s not the cyclical industry it was 10, 20 or 30 years ago.”
Robb said that, historically, cattle producers were able to make management decisions based on the cattle cycle.
“The cattle cycle is still here, but it’s not the economic driver it was,” he said. “It’s time to bury the cattle cycle.”
Robb reminded that the U.S. cattle herd is expected to be 30 million head on Jan. 1, 2012, and he said not to forget that a large portion of U.S. beef comes from the dairy industry, even quality beef.
“Thirty percent of well-fed Holstein steers will grade prime,” he stated. “If you look at our prime beef production, overall about half comes from the dairy industry.”
Of the market volatility, even from week to week, Robb said calf prices are back up to where they were earlier in 2011, and he mentioned an Oklahoma City auction where in a late-November sale five-weight steer calves brought $12 per hundredweight more than the sale the week before.
Robb also mentioned that heavyweight yearling prices are setting highs, and he expects cull prices in 2012 to set new record highs.
Robb said he has an “upside-down T” chart that illustrates the cattle inventory in the United States. It runs from Minnesota south through the Midwest down to the coast, with the bottom bar running from Arizona to Georgia. He said that “T” shape hits the declining portion of the U.S. cowherd, but he said all those areas are declining for different reasons.
“Twenty-five percent of the nation’s beef cowherd is in extensive drought zones,” he said. “We don’t think some of those cow operations will come back into business. Some will turn into wildlife programs, and others into more intensively farmed ground.”
To stabilize the cowherd, Robb said that the industry would have to add 300,000 head of replacements, and more than that to get it to grow.
“Replacement heifers will go down 4.5 percent in 2012, so this is a dramatically shrinking cowherd,” he noted, adding that cow slaughter has been a contributor.
“On Jan. 1, 2012, the U.S. beef cowherd and total cattle inventory will both be down two percent from the year before,” he stated. “There will be increases in places like Nebraska, but the whole puzzle is that the cowherd is declining.”
He made the point that, even if producers start to hold back heifers in 2012, it will be 2015 before beef production will actually increase.
“The drought has driven this, and in the West grassland doesn’t recover in one year from a drought,” he noted, predicting that, at some point, five- to six-weight heifer calves will start to sell at a premium compared to steer calves.
He added that a subtlety of the business is hydraulic fracturing and the renewed oil and gas booms in the United States.
“Producers in Texas and Oklahoma are making more money from oil and gas leases than they’ve made in their lifetime. If they’re getting oil money, how high will they push cattle prices?” he questioned. “There’s no constraint to their depth of cash, and they don’t have to go to the bank to borrow money.”
Robb said he suspects that on Jan. 1, 2013 producers will make $170 to $190 per cow, including pasture costs, and he said he could be underestimating those amounts.
“Forage is way more valuable than it ever has been, and the key will be to get more production from your acres,” he said. “If you’re going to add cows, you have to figure out how to do it on your existing acreage. This is an opportunity to make money in this business like we haven’t seen in a long time.”