Producers need to sharpen their pencil to stay competitive
Rapid City, S.D. – Managing expenses and knowing the cost of production while continuing to produce a quality product are all factors that will keep the cow/calf producer profitable in coming years, according to Jim Robb, director for the Livestock Marketing Information Center.
Robb spoke to a group of over 500 ranchers during the Range Beef Cow Symposium in Rapid City, S.D. on Dec. 3-5.
Robb said the U.S. economy is still experiencing very slow growth.
“The average U.S. consumer is poorer today than they were in 2008 in real expendable dollars,” Robb explained. “That is a real concern for the beef industry.”
Demand consists of quantity and price. While per capita consumption of beef continues to decline, the price consumers are willing to pay for beef continues to increase.
“When the consumer is willing to pay a record high price today, demand for beef can actually increase even though per capita consumption is declining,” Robb said.
With corn prices on the decline, producers should be able to produce beef cheaper.
“The ethanol boom is over,” Robb stated. “Since ethanol is no longer a government-mandated program, it is no longer driving the corn market.”
However, it may take hay a couple of years to come down in price, he noted.
With 92 million beef cattle in the U.S., our country is still able to produce more beef than anyone in the world with fewer head.
Rebuilding the herd
“We lost about 800,000 to 900,000 head of beef cows last year,” Robb said. “It is going to take some time to build the herds back up again.”
Some areas of the country may never rebuild. Robb talked about Southern California, where irrigated pastures that were once the livelihood for cow/calf producers grazing their cattle are now being torn up and planted to vines and orchards.
“The irrigated beef cow sector is hard to maintain without water, so it’s declining,” Robb said. “They are struggling to rebuild their cowherd.”
It is also a struggle in areas of Texas where they are just recovering from years of substantial drought.
With the blessing of the cow/calf sector, Texas lawmakers changed their land policy so that landowners can raise wildlife and still have their property taxes reduced to ag valuation rates.
“They no longer need to rebuild their cowherd just to get their property taxes reduced,” Robb said
However, herd buildup is progressing in the northeastern states. “They are seeing an increase in beef cow numbers because the dairy industry has declined there,” he said. “What we need to remember is as we start rebuilding the cowherd, certain parts of the U.S. will be constrained, so it will be a slow growth process.”
Looking at the numbers, Robb said people can become deceived because beef production numbers have stayed up the last couple years.
“The driving factor is that beef production has been masked by cow kill. A lot of cows have been slaughtered during the last couple years,” the analyst said.
He expects that number to reduce dramatically during the next few years because cow kill numbers are declining, the calf crop will be smaller, and less Mexican feeder cattle are being imported.
Robb also anticipates a decline in the U.S. cowherd, which will be reported on Jan. 1, 2014.
“The recent growth will continue to be moderate,” he said. “But, it will be 2017 before we see a significant increase in U.S. beef output.”
He also expects beef production to decline in 2014.
“I am expecting only a slight increase in total red meat and poultry production, and that is largely dependent on how much is exported,” he explained.
Robb told producers they have to continue to produce a quality product to remain competitive with other meat products for the U.S. consumer’s dollar.
“The current U.S. economic growth tells us we can raise the price of beef, but if the economy doesn’t continue to show growth, consumers may switch to pork or chicken if beef goes up in price,” he explained.
In the meantime, Robb projected cattle prices to increase next year. He anticipated slaughter cow prices to be at a dollar per pound by next fall.
With this increase and some input costs on the decline, Robb said producers may have a rare opportunity to increase their cow numbers if they can manage their costs.
A few years ago, Robb said his company determined producers spend an average of $550 a year to run a cow. Last year, because many producers had to purchase a lot of feed to maintain their cows, that number averaged $800. Robb doesn’t anticipate a tremendous drop in input costs, but figures this year that number may be closer to $700 to $750.
“Feedstuffs have come down in price and so have energy costs,” he said. “Calf returns are off the charts, but it takes more money than ever to be in the beef business.”