Bullish for beef: CattleFax friendly for 2012 markets

Mitchell, Neb. – “The weather outlook for the next six to 12 months has a decent chance that Texas will get some limited moisture. If that’s the case, we should view the world a little differently through 2012 in terms of beef cow herd liquidation,” said CattleFax analyst Mike Murphy at the Range Beef Cow Symposium in Mitchell, Neb. on Dec. 1.
    “The result of the drought has been an unexpected increase in beef cow slaughter. In 2011 we’ll be up between 225,000 and 250,000 head, about a three percent increase from what we saw last year. In 2012 we anticipate we’ll see a significant decline in the number of beef cows harvested, and this includes dairy cows,” said Murphy.
    “For 14 of the last 16 years we’ve seen a drawdown in our beef cow numbers here in the U.S. On Jan. 1 we anticipate we’ll have 30.2 to 30.3 million head, down about 165,000 head from the previous year. In 2013 we’ll probably see another slight decline from where we were at on Jan. 1, 2011,” he added.
    Murphy said that, with cooperation from Mother Nature, cattle producers should see 30 million as the low water mark in the U.S. cowherd for the next five, 10 and 15 years.
    When looking at the overall supply of cattle, Murphy said the net effect is a decline in 2012 and again in 2013 in the number of steers and heifers harvested in the United States.
    “This year we’ll hit about 26.2 or 26.3 million head, and we anticipate 26 million in 2012 and 25.5 million in 2013. 2013 and 2014 should be the low water mark on harvested cattle, but again it all depends on what we get done with Mother Nature,” he commented.
    CattleFax anticipates demand in 2012 will be about even with what was seen in 2011.
    “Some changes that have impacted the structure of the market are that with the draw down in supplies and strong pull in overall demand, in 2011 the cattle feeder gained quite a bit of leverage with the packer, and we’ve actually squeezed retailers pretty hard,” said Murphy “Part of the nice surprise in 2011 relative to anticipated fed cattle, feeder cattle and calf prices, is that because of the drawdown in overall supplies, and the demand pull, we were able to squeeze everybody above us.”
    For 2012, Murphy said the first thing producers will read about early next year is that retailers will raise prices across the board.
    “Retailers won’t be able to absorb the higher prices without passing them on to the consumer. In the short run that may impact demand a little, but we need the retailer to pass the full additional cost on to the consumer to get the consumer used to paying a little bit more so we can keep our prices as high as we’ve enjoyed the last couple years,” said Murphy.
    Murphy noted the tremendous demand for lower value beef items.
    “Trim continues to fly off the shelves, and cuts out of the chuck and round have also seen increases. The areas of the carcass that have struggled the most are the middle meats, or steak cuts,” he stated.
    Should rib and loin values rebound, and should gains in the rest of the carcass remain, Murphy said both retail beef and cattle prices could continue to move higher in the next several years.
    In the export realm, Murphy said a 10 to 12 percent increase was expected in the last year, but that actually ended up at 23 percent.
    “U.S. beef was valued very well against all other products around the world,” said Murphy of the exchange rates.
    “In 2012 we anticipate another 10 to 15 percent increase in the amount of beef we’ll send overseas, and we also anticipate a slight uptick in the amount of beef we import,” noted Murphy.
    Murphy said the export growth came, despite the limited access that remains in markets like Japan.
    “Japan’s sending signals that they’ll look at how they handle U.S. imports and might relax some of the significant restrictions they have on our product,” he explained. “Most of us are cautious on whether they’ll follow through. It may be 2012 or 2013, but we do anticipate more full and complete access to the Japanese market.”
    Regarding the value of exports, Murphy said before the BSE case in the United States $175 to $200 per head was from exported product, including beef, hides and variety meats.
    “After BSE, that went from $200 to $50 very quickly, and it’s been a slow and painful path back, but this last year we were $110 higher, and our anticipation is that trend will continue and settle at $250 per head,” he said.
    Murphy said hide and offal values have added a lot to the carcass, and part of that is due to rising car sales outside the United States, which has increased the demand for leather.
    Speaking of the market outlook, Murphy said there are a lot of bullish signals.
    “The current futures market structure has a bullish market priced in. With supplies drawn down and demand being good, we are very friendly for 2012,” said Murphy. “We think that for the U.S. average we’ll be $170 to $175 per hundredweight on a 550-pound steer. That seems awful high, but we’ve got a good basis for thinking that will be the case.”
    “In general, the trend will be for the cow/calf producer to be more profitable in 2012, 2013 and 2014 than the last several years,” he continued. “If that is the case, we do think it will send a signal back to the producer to start expanding or re-stocking. We think ultimately this profitability will lead us to see larger beef cow numbers over the next four to five years.”
    “The part that needs to take place for us to sustain these price levels is for retailers to increase the price they’re showing to the consumer, and we anticipate we’ll start to see that over the next several months,” he concluded.
    Christy Martinez is managing editor of the Wyoming Livestock Roundup and can be reached at christy@wylr.net.