Cattle market looks promising despite drought
September 26, 2012
The cattle market remains volatile as market analysts try to determine how much longer the drought will last. "I think we're all pretty optimistic about cattle prices," said the director of the Livestock Marketing Information Center in Denver, CO. "We're just worried about how we're going to get there. It is going to take some good management to get through this drought."
Jim Robb addressed nearly 100 ranchers in attendance at the University of Nebraska Gudmundsen Sandhills Laboratory 13th Annual Open House last week in Whitman. Robb spoke to producers about the cattle market, addressing the current situation, outlook and issues.
"In terms of overall environment, domestic and consumer demand is still pretty good," Robb reported. Foreign demand for beef remains strong, with Asia, Mexico and Canada driving the export market. "Price volatility will continue," he told the group. "I don't think we've seen anything yet."
Although Robb isn't expecting another recession, he reported that overall, consumers are actually worse off than they were four years ago. "When you adjust the dollar for inflation, people actually have less disposable income than they did in 2008," he said. "The good news is the economy is not growing, so I don't anticipate an increase in interest rates," he said.
U.S. consumers are paying record high prices for beef, which has actually increased demand during the last two years since quantity and price both affect demand. "It is concerning that consumption of beef is going down, but the increase in price has compensated for that," he said. "It is still below where it was before the recession, but it is growing," he added.
Despite all the controversy surrounding lean and finely textured beef, consumers still demand it. Since it is no longer produced in the United States, it is being imported. "Imports are higher this year, and it is mainly because of that and how the industry responded to it. Last week, I heard it called an additive to beef. People need to understand it is not an additive, it is just beef," he said.
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While the country saw record high cattle prices in 2011 because of the export market, Robb predicts the export market to decline slightly this year. "This could be the second highest year, but it is going down. The export market is still high by historical standards, but nothing like last year," he said. Demand is softer than a year ago on the export market, but domestic and consumer demand has held up quite well.
Going into winter, the big question for ranchers is obtaining enough feed to maintain their cattle until next spring. "Most of the ranchers in Montana are making sure they have insurance on their cows," he said. "If there is a big blizzard this winter, they want to make sure they're covered. I think overall there has been a lot of lack of planning in this industry. We just weren't prepared for a drought of this magnitude," he said.
The country is also waiting to see how high corn and wheat prices will go this winter. Robb projects prices for corn will topple the $8 mark, and may go even higher until there is a new crop. "If we get a decent corn crop next year, the price may come down. They are already projecting planting over 100 million acres next year. I don't see that happening since we only got 96 million planted this year," he said.
Robb also encouraged producers to sell their cull cows soon, as the dairy industry has been slaughtering 20,000 head more dairy cows a week than it was a year ago. "The dairy industry is in trouble," Robb said. "Many operations are going bankrupt. We have never seen such a narrow level between the price of milk and feedstuffs," he explained. "We may see a lot less dairies in this country because producers are having to cull, which is having an effect on the beef cull cow market," he said. "In fact, dairy cow culls will drive cull cow prices for the next six months until milk prices come up," he said. Despite that, Robb predicts 1,300 pound cull cows will be bringing a dollar a pound. "Consumers like hamburger, and that is where most of the hamburger comes from," he said. "Consumers are willing to pay $5 a pound in the grocery store for it."
On the beef cow side, Robb said the drought has caused producers to liquidate more cows decreasing the U.S. cow numbers even further. "Cow numbers will be down again January 1, 2013," Robb said. "The beef cow herd just doesn't grow. I think if you are a producer, and can get through this drought, you will be sitting pretty well when it is over with," he explained.
Robb is also optimistic about feeder calf prices, and projects the market will move higher because consumers are paying record prices for beef.
On a final note, Robb addressed the new farm bill explaining that in the last farm bill, only 50 percent of it was human nutrition programs like school lunches and food stamps. The new farm bill is 80 percent human nutrition programs, which has nothing to do with agriculture. "The hold up on a new farm bill is that Congress doesn't want to debate slashing human nutrition programs," he said.