Positive predictions for beef cattle industry prices continue across all sectors
With general excitement for the beef cattle industry moving in 2014, Kansas State University Economist Glynn Tonsor said that returns over cash costs are very positive for the next year.
“Narrowly, the projections by the Livestock Marketing Information Center for 2014-15 at roughly $350 returns for per cow over cash costs,” he commented. “When we compare that with 2013 and $125 to $130 returns, we can see the notable scale difference of those expected returns.”
The high returns are driving expansion interest for those producers in the position to do so and are creating excitement throughout the U.S.
“We also have some growing confidence in pasture conditions, which leads to those projections in 2014-15 being positive,” he said.
“The question is, are these prices enough to pull the trigger on expansion?” Tonsor asked. “I would say yes, although that is considering that the cattle inventory had a smaller increase than we were expecting.”
An additional factor that tells more will be the Economic Research Service’s 10-year projections on the size of the herd, which will be released in late February.
“In 2012, they were projecting a 12 percent increase in the herd,” he said. “I think they will be projecting a 12, maybe 13, percent increase in the herd.”
He added that the number could be higher, if they expect expansion to occur more quickly.
“There continues to be attractive values of gain for favorable cost positions,” Tonsor said. “We need to watch for those projections.”
Stocker and feeder
The value in the stocker industry shows returns in the $110 to $120 range for a variety of scenarios, which is also favorable for producers.
“In the feedlots, we have significant improvements in returns for December through March,” Tonsor said. “January returns were better than expected and anticipated, and February and March closeouts have improved notably.”
Excess capacity and margin pressures from issues like mandatory country-of-origin labeling, concerns about removal of beta agonists and removal of supply caused by heifer retention are also present.
“All of those factors put pressure on the market, and each has an unknown duration,” Tonsor commented. “I don’t want to lose sight of those concerns, even though profitability has improved.”
Tonsor also added that month profit projections for industry segments are released, and in December, steers were profiting about three dollars.
“That is the first month we projected profit since March of 2012,” he said. “That long streak of red ink may have come to an end in December.”
Continuing into January, he said returns were expected to hit $124 per head – a notable increase from projections due to the increase in feeder prices.
“Returns for the first quarter of 2014 look like they are going to be a lot better for the feedlot industry than we were expecting at the time of placement,” Tonsor said.
However, returns for April are predicted as negative because June live cattle contracts were utilized, and the price of $133 was notably lower.
Looking at slaughter numbers, Tonsor said that if expansion is going to occur, it is almost a mathematical certainty that slaughter numbers will pull down.
“Dressed weights are also expected to go up, though not a lot, and commercial beef production is expected to go down six to 6.5 percent,” he continued. “That coincides with beef availability being down notably for the consumer in 2014.”
Pull-downs in commercial slaughter numbers are also predicted into 2015, with estimates of a 3.5 percent reduction compared to 2014 numbers that year.
“That may be affected by dressed weight, resulting in maybe only a three percent pull-down,” Tonsor explained. “Regardless, tight supplies are here to stay.”
Parallel data for cattle prices also shows increases.
“Cattle prices in 2014 are expected to be up 10 percent, but that may be front-loaded, given the notable run-up,” Tonsor said. “If anything, the increase in fed cattle prices confirms that the value of calves is at a historic level.”
“The bullishness, from a historic perspective, is expected to continue through 2015,” Tonsor concluded.