Long-term beef outlook says good times aheadWritten by Christy Hemken
“There is good news for the cow/calf producer on the supply side of the market,” says Feuz, who is also an area educator for southwest Wyoming based in Evanston.
Although some would argue there is no longer a cattle cycle, Feuz says the industry did start to see a small buildup in cattle inventory for the period ranging from 2004-2009, which is now on the decline.
“This cycle was definitely not nearly as pronounced as the last few, and part of that is due to the corn market,” he explains. “Corn used to be really tied to the cattle market, but now corn prices are more tied to energy markets than the livestock markets. That’s really changed how we look at the cattle market.”
The Jan. 1, 2009 cattle inventory was down 2.4 percent from the year before to 31.7 million head. Dairy cattle numbers remained flat, increasing slightly to 9.3 million.
“As our inventory is high, profit margins are low, and when inventory is low our profit margins are high. We had some of the best margin years in the early part of this decade because we were very low in terms of inventory,” says Feuz. “Last year was the first year that showed a loss for the average cow/calf producer, based on the data.”
He says it depends on the set of data, but either way it shows a loss or a break even.
“This year we’ll have the lowest calf crop since the 1950,” says Feuz. “We know we have fewer cows this year than last. We’re down 1.5 percent.”
Heifers held as beef cow replacements are down another two percent this year. “We’re continuing to reduce the size of our cow herd, which is good news for the cow/calf producers who still have the herd numbers,” he continues. “This means there’s a restricted supply for feeders and for people to eat. That’s the good news part of the cattle business right now – we’re at low numbers.”
Although feeder cattle supply numbers showed a rise after Jan. 1, Feuz says that’s because at the end of 2008 calf prices dropped so much that many people held the calves over in hopes of better prices in the early winter or spring. “We haven’t increased the feeder cattle supply, we just shifted them a few months later, so 2008’s way down and 2009’s up a little bit because of that small shift.”
Feuz says if producers contracted last summer they were a lot better off. “That’s not always the case, but in hindsight that was the thing to do, either that or hold them. In these times it may pay to hold calves later.”
As a part of the Master Cattlemen’s courses, with which Feuz is involved, he says they look at the break-even analysis of selling calves in the fall or holding them until March. “This year was the first that it’s looked attractive at to hold calves until March in Wyoming,” he says. “The heavier weights are not discounted as much at the feedlot now because of the high cost of feed. If you can put weight on your calves and sell heavier weight calves you’re probably going to be rewarded in this market.”
In terms of commercial beef production, Feuz says most of the red meat markets have been in a growth phase and the industry has been growing the amount of available beef. “Another interesting aspect of why the cattle cycle may not work quite so well anymore is that we now produce more beef with less animals,” he notes.
Even though the calf crop may be as low as that of the early 1950s, in terms of beef production the U.S. will still be as high or higher than ever. “We’ve been able to produce more beef with fewer animals, and meet the demand with a fewer number of animals,” says Feuz.
However, beef production is expected to drop in 2009 and 2010, something Feuz says hasn’t happened in quite a while. “Demand has started to decrease and we’re losing more cows,” he says, adding that pork and broilers are in the same situation. “There aren’t fewer people, just less dollars in peoples’ pockets to purchase meat as a protein source.”
Good news in the feeder market is that calves placed this winter should break even, says Feuz. “The feedlots have been losing a lot of money – as much as $200 per head – and the equity has really drained from the feeder industry. Traditionally feedlots hate to have empty pens even though they’re losing money, but they’ve finally come to the understanding that it’s better to have empty pens right now until they get their margins back.”
In the big picture, Feuz says economists initially forecast the fourth quarter of 2009 would be the bottom of the recession, but now they’ve moved that to the end of 2010. “The good news for the cattle industry is based on supply numbers,” he comments. “As soon as the recession bottoms out and there is life back in the economy we should be in a really good position because demand will come back for our product and we’ll still have the restricted supply.”
“If a producer can last a year or two of bad times, we should be in for some good times in the long-term outlook,” he says.