Expert opinions on 2009 year in agriculture vary greatlyWritten by Jennifer Womack
If one federal agency is correct, corn prices are heading for a decade-long slump below $4 as production in the U.S. catches up with demand. According to an article on the Livestock Marketing Association’s news pages, that’s the prediction from the Congressional Budget Office (CBO), in a document used as part of a government-wide estimate of federal spending over the next decade.
According to the LMA, the CBO said the average cash price for corn will bottom out at $3.65 in the 2012-2013 marketing year, then rise no higher than $3.94 through 2019. While the CBO predicts total use will jump by 18 percent, to 14.719 billion bushels by the end of the decade, they also forecast production will increase 23 percent over the same period, to 14.738 billion bushels. Those figures, and a predicted gain in yields, will absorb rising demand for corn for exports, and as a source of ethanol. Corn is the biggest U.S. crop, valued in 2007 at $52.1 billion.
Meanwhile, the U.S. Department of Agriculture is predicting that the global financial situation will result in reduced beef exports in 2009. “The big unknown in this whole global beef market is…the impact of the global financial crisis,” said a USDA deputy undersecretary, Chuck Lambert. For example, he said, export sales and shipments to South Korea looked “really good into Korea until early October, but then they declined on a weekly basis.”
Speaking to attendees at the 90th Annual American Farm Bureau Federation convention this past week in San Antonio, Texas, Purdue University ag economist Chris Hurt predicted a “year of struggle” for the livestock industry. Hurt noted that livestock producers were hit with the “double whammy” of a recession and high feed costs last year. “We’re going to see another year of struggle” for producers, he said at a livestock market outlook session at the meeting. Keeping beef supplies down is necessary for the cattle industry to make a profit, he said. Higher feed costs have trimmed meat production for the past two years, and Hurt said because of the recession, he expects another decline in production this year.
Late December 2008, a Certified Angus Beef statement predicted that feed costs wouldn’t be a feedlot’s biggest worry in 2009. Rising to the top instead? Sourcing feeder cattle.
“I’d argue that the biggest challenges cattle feeders will face over the next few years are going to be sourcing feeder cattle and economically utilizing excess feedlot capacity,” said Mike Sands of Informa Economics at a CAB-sponsored forum.
According to CAB, cowherd returns fell from $180 a head in 2005 to just a few dollars in 2008.
“Typically, changes in profitability have about a two-year lag effect in the size of the cowherd,” said Sands, “so the slowdown in returns in 2007 and 2008 will continue to impact the size of the beef cow herd as we go into 2009 and 2010.”
This past summer, said CAB, cow slaughter hung around 20 percent above a year earlier, suggesting about 700,000 cows were taken out of the nation’s cowherd during the calendar year. That reduction could extend into the next few years, bringing total cutbacks to a million head.
“Well, if we don’t raise our own feeders, why not just import them from Canada?” Sands asked. “We’ve been fairly aggressive in doing that in the past, but they’re under the same kind of economic pressure we are and reducing the size of their cow herds as well.”
Sands estimates the industry is peaking seasonally at 80 percent feeding capacity right now and he expects that number to dip to under 70 percent by late spring or summer.
“It’s going to be real tough for a lot of cattle feeders to maintain profitable operations with capacity utilization rates slipping that low,” he said. This could lead to changes to dairy or beef heifer developing, more specifically backgrounding yards and more consolidation.
Sands said the worldwide demand for beef continues to grow despite the recession. Noting places like China, India, South Korea, Hong Kong and Singapore, Sands said, “In the past two or three years, we’ve probably added about a billion people to the worldwide middle class. That demand on resources is not going away.”
Sands aid economics favor higher retail beef prices and strong beef demand despite the U.S. recession and worldwide economic slowdown.
“I keep hearing that we’re in a recession, and isn’t that negative for beef demand? Historically, no,” he said. Beef consumption will get smaller, but mainly because we’re going to produce less.
“People are going to talk about eroding beef demand — and that still is a risk — but historically, that’s concentrated in the foodservice industry while retail demand increases. Taken together, beef demand during recessions does not fair badly,” Sands explained.
To hold or grow that line over time Sands said producers need to keep supplying consumers with the type of beef they’ve continued to crave.
“Over the past couple of years, we’ve gotten used to a certain level of quality in the industry — more choice cattle in the slaughter mix,” he said. “I don’t think consumers are ready to compromise that. They’re going to want to see grading continue to increase.”
Compiled by Roundup managing editor Jennifer Womack using reports from the USDA, the Livestock Marketing Association and Certified Angus Beef.