Market outlook, Forecasts hold steady with 2010 prices

Torrington –     “For the last three to four years the cattle inventory has declined with each Jan. 1 report, and I’m pretty sure this January it will show another decline by another half to one-and-a-half percent. There is no indication, based on slaughter cow and replacement heifer data, that we’re starting to build the herd at all,“ says Dillon Feuz of Utah State University of U.S. beef numbers.
He adds the 2010 calf crop is the smallest in terms of number of head since the 1960s.
“One thing to think about is that most feedlots were built in the 1970s and 1980s, and were built for a much larger supply of cattle than we have this year and in recent years. In terms of feedyard economics, the best way to make money is to keep the pens filled, and we’ve taken the capacity out of them in the past few years.
“If feedlots have excess capacity, they’re more aggressive in bidding for calves, and some lost money as they competed for a shorter supply of calves. This will continue, to a degree, as we move forward, as residual supply of cattle outside feedlots is in very tight supply, also,” notes Feuz.
He adds that marketings of fed cattle are occurring at slightly lighter weights than a year ago.
“Producers and feeders are doing a good job of getting cattle finished and marketed, and not holding them around too long. This is partly due to higher corn prices. But, feedlots are also being aggressive in their marketing and staying current with cattle. They aren’t taking them a couple extra weeks to battle price this year, and they’re making money,” he says.
Feuz predicts that, barring the economy falling apart, the supply side will remain fairly tight on total beef, and support higher prices into spring, early summer, and even a year from now.
“Into 2012, we still predict less total beef. Even if we start expanding the cow herd, the first couple years of expansion will reduce total pounds of beef as we keep more heifers as replacements and out of the feeding industry,” comments Feuz.
“On the supply side we have inventory decreasing and capital in short supply, and those two things are very supportive of higher calf and feeder cattle prices. Carcass weights are down from a year ago, and that’s helped reduce feed consumption and helped support fed cattle prices at a higher level. Everything is pointing towards good prices over the next six months to a year when looking at just the supply side.”
As for beef demand, Feuz explains that it is changing as the economy changes, and while it has been down slightly the last few years, he believes that is due primarily to the entire downward shift of the economy, and not due to a shift in preference away from beef.
“Higher end cuts, like steaks, have been below the five-year average, and have continued to struggle a little. But the lower end beef products, like ground beef and thinly sliced roast products, are significantly higher than a year ago and the five-year average price,” notes Feuz.
“With the economy the way it is, consumers still like beef. They aren’t going to the supermarket and saying, ‘I can’t afford a steak, so I’ll buy chicken.’ They’re saying, ‘I can’t afford steak, but I can but a roast or ground beef,’” explains Feuz.
He adds the increased demand for lower quality beef cuts is supportive of the higher cull prices seen this year.
“There is some very good news on trade. Beef and veal imports have been down, and are below the five-year average again this year, and I just saw something that said by September 2011 we’ll be quite a little below where imports were a year ago, but exports are up. We were up a year ago, and are up again this year,” notes Feuz.
He adds that while BSE contributed to some market loss, and Japan and Korea have been slow to rebound, others have come back to U.S. beef more quickly.
“Mexico came back fast and is our top exporter now, and Canada is strong, too. They are both trading partners with us. Not only are Canadian cattle down, but we also ship a lot of cattle to the north, particularly in eastern parts of the U.S. that are closer to the population centers in Canada.
“We’re finally getting through most of the hurdles with Japan and Korea, with age restrictions and their worrying about our product, too. We’re starting to build consumer confidence back in those areas,” adds Feuz.
“The last couple years, which doesn’t include 2010, we were up close to a billion dollars on the positive side on trade. That comes back and influences fed and feeder cattle prices. We don’t get it all, but it does have some effect. If the politicians don’t mess with us too much, exports should continue to grow as we move forward,” he says.
Another area affected by political policy is corn, and the continually rising demand and its cost for the feeding industry.
“As of 2010, we were up to a projected 12 billion gallons of ethanol production, and we have more years of growth ahead. So, what we see in the marketplace is that, while farmers are excellent at growing more corn, when we get a year with weather challenges meeting the demand for exports on corn and feed becomes questionable,” says Feuz. “Nothing against the corn farmers and lobbyists, they wanted another market for corn and higher priced corn, and have certainly gotten that over time with the ethanol policies, and particularly the mandates, that are now in place.
“But there are unintended consequences. If you consider everything else being equal, we’ve probably taken between $30 and $40 per hundredweight off the price of a calf. That’s between $150 and $220 per head, and that’s not just the cow/calf industry, it’s all industries. Essentially, these users of corn are funding this energy policy. I’m okay with competing with ethanol if it’s a level playing field. Remove the subsidies, the import tariff, and remove the mandates – do these things so your industries aren’t subsidizing their industries,” says Feuz.
In summary, Feuz says that 2011 spring feeder cattle prices are projected to be about equal with spring 2010 prices at between $117 and $123 a hundred for a 750-pound steer. Fall prices are also expected to be similar to 2010, with 950-pound steers bringing between $108 and $118 a hundred, and 550-pound steers bringing between $120 and $130 a hundred.
“Supply and trade conditions are supportive of higher feeder cattle prices, while the economy and corn markets are potential barriers to higher feeder cattle prices,” concludes Feuz.
Dillon Feuz presented this information at the Beef Production Convention held in Torrington Nov. 23. Heather Hamilton is editor of the Wyoming Livestock Roundup and can be reached at heather@wylr.net.