Volatility in the marketplace, and how producers can manage their risk in the midst of these historical swings was the focus of the annual cattle industry market review during the CattleFax “Industry Outlook” presentation at the 2012 Cattle Industry Convention and National Cattlemen’s Beef Association Trade Show, Feb. 3, Nashville, TN.
Leading off, the primary issues discussed by the CattleFax market analysts were the declining cattle and beef supplies going into 2012, after two strong years of high cow slaughter numbers, topping the highest level in nearly 15 years.
“The drought of the Southern Plains has decreased cattle numbers in Texas, Oklahoma and the surrounding states. Texas reported a decline in 2011 of 660,000 head of cows with many of those being shipped to the more feed effluent Northern Plains,” said B. Lynn Gordon, South Dakota State University (SDSU) extension cow-calf field specialist, during a recent iGrow podcast.
Although Texas and the Southern Plains have recently returned to receiving near normal rainfall, current predictions presented during the CattleFax Outlook show this region could turn drier as we move into the late spring and early summer. In comparison, the Northern Plains has experienced one of the warmest and driest winters on record, after nearly five years of cold, snowy winters.
“Not only are low cow numbers starting off the year, but they are also reflected in the likelihood of smaller fed cattle supplies in 2013 due to a smaller 2012 calf crop,” Gordon said. “If heifer retention does begin to unfold, feedlot supplies will be further reduced. More heifers will begin to enter cow herds and less cow slaughter will occur, albeit the moisture levels and weather cooperates.”
However, despite the decreases seen in cattle numbers in the U.S., increases were witnessed in beef exports, which were up 23 percent in 2011, compared to 2010.
Analysts believe the global market trade added an average of $261 per head to fed-steer prices.
“A robust beef export market improved the overall demand for beef, and all projections show exports to likely improve even more in 2012,” Gordon said.
CattleFax stated that some of this improvement in the export markets will continue to come if the Japan marketplace continues to move forward with opening up greater accessibility for U.S. beef, creating overall improved beef access to Japan.
“The analysts reported that 2012 could bring record-high prices for all classes of cattle. Calves could average as high as $175 per hundredweight and yearlings will predictably average about $150 per hundredweight,” Gordon said. “With these higher prices, feedyards will struggle to have the margins needed, tightening up their profit potential.”
The industry has seen staggering production cost increases and can expect to see some moderation in these costs. With these higher costs it has taken a lot of capital to do business. Feed cost increases alone have added $550 per head to the feeding industry and added an overall $16 billion in cost to the industry.
“CattleFax predicts the shrinking cattle supplies and higher input prices will continue to have an influential impact on the beef industry’s structure in 2012,” Gordon said. “If margins shrink, this may be reflective on reduced feedlot and packing capacity.”
According to Randy Blach, CEO of CattleFax, “As higher prices lead to increasing market volatility, producers should manage for a margin; don’t guess the markets in such volatile times, because we are witnessing how increasingly important managing price risk has become to production agriculture. It is easy to see how optimistic things can be as you look at it, I’m thrilled to see the opportunity for the industry to expand the cow herd, over the next several years, but we still need to be mindful of the risks at hand.”
– South Dakota State University Extension