Donald Guthmiller: 2011 beef outlook
As of late, cattle prices have looked really good, and the cow-calf sector is gearing up for profits in 2011. This is great news for anyone in the business, but many know the trend can change in an instant. Working to predict the economic cycle of the upcoming year is Donald Guthmiller, Extension marketing and farm management educator from Hamlin County (SD). Guthmiller spoke at the Pfizer Animal Health meeting in Brookings on Feb. 10, and his presentation was titled, “2011 Market and Price Outlook for Cattle and Grains.”
“Currently, we have the lowest cow numbers since 1958,” said Guthmiller. “In 2011, many of you are already calving. If you are keeping heifers back this year, how long will it be until they are productive? It’s going to take three or four years before we start to see an expansion in our nation’s cowherd. The million dollar question is, will the cowherd grow or will it continue to slide?”
To gain a better perspective of state and nationwide cow numbers, Guthmiller showed that the U.S. lost 500,000 cows in 2010, and more than 8,000 cows in South Dakota the same year. In fact, in the last two years, South Dakota cattle inventory has dropped a whopping 16,000 cows, according to the Livestock Marketing Information Center (LMIC).
“Where did these cattle go?” Guthmiller asked. “Well, if you look at cow slaughter numbers, it looks like we have killed a lot of cows in the last year. Obviously, with low cow numbers, our calf crop is smaller, too. Finally, on Jan. 1, 2011 compared to Jan. 1, 2010, beef replacement heifer numbers are down over 5 percent. An increasing number of heifers are going to the feedlot. The number of heifers over steers on feed has been higher than one would expect.”
A simple lesson in economics shows the relationship between supply and demand, and many could infer that demand would go up as a result of low numbers. Guthmiller pointed out that on a national basis, producers have seen much higher prices in the last decade. Yet, feedlots are hurting for calves to meet the amount of bunk space available.
“Obviously, with less cows and fewer calves, we have less feeders in the feedlot,” said Guthmiller. “Feeder calves were down by 938,000 head in the U.S. in 2010, and South Dakota numbers dropped by 85,000, as well. Speculators are very concerned about numbers.”
An interesting point many producers should consider is the import/export markets in the U.S.
“Typically and historically, we import more carcasses than we export,” explained Guthmiller. “Now, we are a net exporter, meaning we export more carcasses than we are bringing in.”
With a healthy, growing export market and higher prices, cattlemen should be sitting pretty this fall; however, escalating input costs might cause pocketbooks to stretch a little more they would like.
“To give you an idea for what to expect for feed costs this fall – there are already offers to pay $5/bu. for new crop this fall,” he said. “We know that when looking at feeding calves this fall, it’s the margin not the price level that’s most important. I predict background and feeding to be profitable in 2011. There will be some great opportunities for producers to graze yearlings, where the cost of gain is cheaper. Corn is still up in the air. Watch the March planting intention report that comes out for a better idea of what you might be paying.”
Of course, the beef industry wouldn’t survive without consumers enjoying steak at restaurants or buying beef at the grocery store.
“Cattle prices will continue to depend on beef demand,” concluded Guthmiller. “Prices have been good, but how high can they go before the consumer starts backing away to different protein options?”
Certainly, interpreting market signals isn’t easy, but if producers keep an eye on cattle inventories, corn prices, U.S. and world economies and consumer demand, it will make the hard questions a little easier to answer in 2011.
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