Beef demand: Demand affects prices
As the U.S. cattle herd continues to shrink, the beef market will respond with tightening supplies for at least the next couple years, according to a University of Nebraska extension livestock economist. Kathleen Brooks recently presented a webinar on Beef and Cattle Market Considerations Moving Forward.
Supply and demand
The USDA supply and demand report on Jan. 1, 2013, reported the beef cattle supply was down three percent in the United States to 29.3 million head. This is the lowest number of beef cattle reported in the U.S. since 1940.
However, the report also showed 1.9 percent jump in heifer replacements in 2013 over 2012.
“We haven’t seen heifer replacement numbers this low since the 1990s,” she said. “The question is, are we trying to rebuild our herds, or are we culling more beef cows and replacing them with younger cows that may be more cost-effective?”
“Culling more older cows will add more youth to the herd. There will also be more opportunities with heifers as we move forward throughout the year,” she added.
Brooks is concerned how the reduced supply will affect demand for beef and, ultimately, beef prices.
The higher prices for beef the last three years are a result of per capita in meat supply, she said. The per capita consumption of beef and most other meat products have declined.
“The per capita of beef has been declining since 1997,” she said. “In 2012, it was the lowest it has been since 1991.”
With less meat available to consumers, prices for the product are climbing upward. While the weather and corn yields have the capability to reduce beef prices, if producers start trying to rebuild the beef herd, less heifers will be on the market which may hold supplies down.
Brooks reported that exports are still on the rise.
“Exports have been increasing since 2004,” she said. “We were a net exporter for beef in 2012. The export market makes up roughly 10 percent of our production.”
However, Brooks is concerned if this trend will continue.
“Our domestic dollar is shrinking, while prices are increasing,” she said. “It is having an impact on how much beef is exported.”
Tightening supplies also have Brooks worried.
“Tightening supplies are forcing us to have less per capita beef available for the consumer. The question remains whether consumers will have enough money to continue paying higher prices for beef,” she explained.
Factors like unemployment and increasing payroll taxes will have a part in determining what happens, she noted.
The chicken and pork industries are also trying to encourage their producers to increase production.
“They are more competition for beef, because they are cheaper meats,” Brooks said. “It will be questionable whether we will be able to keep our prices above $200 per hundredweight for boxed beef cutout value.”
Whether or not cow liquidation continues from the drought will also be a determining factor in the market.
The forage supply in the U.S. has been tremendously reduced by the drought conditions, although it has somewhat rebounded in recent weeks from all the moisture received lately.
Hay stocks are at their lowest since 1957, Brooks said. Hay acreage is also decreasing, as some of those acres are converted to corn.
In the Great Plains region, where about 30 percent of the U.S. cowherd is based, range and pasture conditions are still rated at about 80 percent poor or very poor.
“I doubt we will see a lot of herd rebuilding in this area for at least another couple of years,” Brooks said.
In fact, most producers in those drought-stricken areas are focused on sustaining their herd through this year so they will be in a position to expand when the market improves and range conditions are better.
At the beginning of 2013, analysts projected it to be the last year cow/calf producers would see record high returns. Now, those returns look even less promising, Brooks said, depending upon whether the corn crop is planted and how cow/calf producers approach cost management in response to the drought.
The question about which direction beef demand is headed will drive how much slaughter steer prices will fall, Brooks said.
Currently, the cost of gain is an estimated $100 to $110 per hundredweight. Brooks said feeders may see some slight declines in the break-even costs if the corn crop is planted in a timely manner.
If corn prices decline, steer prices may maintain or rise, she added.