Feuz: Fall 2012 beef cattle markets could top 2011Written by Christy Martinez
Feuz spoke at the 2012 Fremont County Farm and Ranch Days in Riverton in early February, and he updated the crowd on the current situations for economy and demand, supply, feedstuffs and trade issues related to the beef industry.
Demand continues to grow
Although economic growth has been slow since the U.S. recession, Feuz said one positive for the beef industry has been the Retail All Beef Fresh Demand Index.
“Even with higher beef prices, consumers haven’t left beef,” he noted.
Feuz said another piece of good news for cattle producers is the Choice/Select spread, which has been relatively flat for the last several years.
“That spread finally started to widen again, and people are getting paid for Choice cattle and some value was created,” said Feuz. “Producers who have spent some time with genetics, or have retained ownership, will start to get paid a little more.”
Feuz said another beef demand indicator is the Restaurant Performance Index, which shows slow growth in the restaurant industry after decline from 2008 to 2010.
Concerning buying preferences, Feuz said he thinks consumers have shifted from middle meats to more chuck cuts and ground beef.
“The middle meats have struggled in comparison to other cuts, and consumers are switching where they spend their dollars,” he stated. “Retail beef prices have increased for 22 months straight, and that’s one of my big concerns. I’m pretty bullish on what will happen with this cattle market, but there are a few caveats, and retail prices are one of them. As retail prices rise, will we lose consumers?”
He noted that the rising beef prices are an indicator of inflation and the devaluation of the U.S. dollar, which is reflected in both food and fuel prices.
“Cattle prices will be at record highs this fall, if demand continues to increase or stays where it is. Based on the supply numbers, there’s no other way prices can go if demand even remains flat,” he said. “That’s the best news for beef producers.”
Cows, calves continue to drop
Feuz said cow numbers are continuing to decline in 2012.
“The beef cowherd shrunk another three percent this last year, so we’re at all-time lows in terms of the number of beef cows in the U.S.,” he said, noting that the dairy herd did grow by one percent.
“In 2011, with the low cowherd inventory, the average U.S. producer made over $150 per cow in profit,” he said, referring to data contrasting cattle inventory with returns and losses. “The average northern producer was probably up over $200 per head profit in their operation.”
The 2011 calf crop declined another percent from 2010, and Feuz said that puts calves below 1951 numbers. However, he notes that U.S. producers continually produce more pounds of beef with fewer animals.
“In the 1960s we were at about 650 pounds for a dressed carcass, and by 2010 we were up to 850 pounds,” he said. “We haven’t really started to lose overall beef production until the last couple of years, when our numbers dropped so low.”
He added that, over the last couple years, the continued growth in carcass size has disappeared.
“It’ll be interesting to see if we’ve reached a plateau in carcass size,” he said.
Feedstuffs remain volatile
“The biggest input for us is corn, and hopefully we can stabilize those corn prices,” said Feuz, noting that they’re another risk to calf prices in Fall 2012. “If we have a short corn crop, prices will really soar, and that will force some negative pressure on beef prices.”
He noted that a movement of 30 cents in a year for corn used to be a big move, but now three or four dollars or more is the norm.
“That makes it difficult for cattle producers to predict input costs, and many economists say we should plan in three-month windows because input costs are so variable,” he said.
Strong exports continue
Feuz also noted the other good news for the U.S. beef industry – the export markets.
“The U.S. used to be a net beef importer in terms of pounds, but even though we were importing more, the value of our exports was worth more than the imports. About September 2010 we turned the corner and became a net beef exporter in both value and pounds, and in 2011 we were consistently exporting more pounds of beef than we were importing,” he said.
Fall 2012: good or slightly better
“The fundamentals indicate that levels next fall will be as good as or slightly better than this fall. In fact, four to five dollars better than this fall is what you can expect,” said Feuz, noting that economic recovery, retail food prices and input prices will be the influencing factors. “Those caveats aside, I expect higher prices next fall.”
“There’s less beef available in the U.S., so that should keep driving the price into the next few years with strong cattle prices,” he noted, “as long as the economy and demand hold up.”
Site provides market analysis
For information on markets and current market conditions, visit cattlemarketanalysis.org, a website dedicated to providing timely market analysis.
“If you want to keep in touch with cattle prices, and understand what’s going on, this is as good a website as you’ll find,” says UW Extension Livestock Marketing Specialist Bridger Feuz of the site, which is based out of Utah State University but is a collaboration with regional livestock economists.
“In 2011, record high beef, fed cattle, feeder cattle and calf prices were realized. All of those records may be broken again in 2012,” writes Utah State Extension Livestock Marketing and Farm Management Specialist Dillon Feuz in a column on the site.
Bridger points out the Cowboy Calculators, which can help producers generate break-evens and net profits for management options like whether to sell or retain calves.
More heifers retained in 2011
UW Extension Livestock Marketing Specialist Bridger Feuz says it looks like the beef herd might be trying to grow.
“We did retain 1.4 percent more heifers in 2011 than in 2010, and that’s the first time since 2007 that we’ve retained more heifers than in the previous year,” he says. “The predicament is that calf prices are so good that there’s a lot of profit in the cow/calf sector right now, and it’s hard to retain those extra heifers when heifer prices are so strong. We’re finally starting to see where some people have taken some profit out to store some equity, resisting the temptation to sell every heifer they can.”
In the second half of 2011 there were a few more cattle on feed than previously, but Feuz says much of that was due to a drought interaction and cattle were going to feed earlier than usual.
He said it will take a couple more years to build the U.S. cowherd to the point that beef production turns around, and that in the meanwhile poultry production is making up for beef declines.
“That’s one risk we always have – even though we have the supply and demand relationship, poultry is out there and available at a cheaper price, so we may start to lose some market share,” says Feuz.