Gregg Doud: 2011 economic outlook for cattle businesses
Gregg Doud’s matter-of-fact attitude about the state of the global economy and how it will impact beef producers in the future fired up those attending the South Dakota Cattlemen’s Association (SDCA) 62nd Annual Convention and Trade Show on Dec. 1, 2010 in Aberdeen, SD, setting the tone for the rest of the meetings.
“To understand what’s going on with beef demand, we have to first look at unemployment rates,” said Doud, chief economist for the National Cattlemen’s Beef Association (NCBA). “Unemployment rates are at 9.6 percent in the U.S. When people don’t have jobs, they don’t have disposable incomes; when they don’t have money, they don’t eat out at restaurants. You wonder what’s going on with beef demand – there it is.”
To understand the state of the beef industry, producers must first look at the U.S. economy, where Doud said the housing sector is still hurting.
“A key driver in our economy since World War II has always been real estate,” explained Doud. “It’s really ugly in the housing sector right now. According to Wells Fargo, it may take three or four years to recover that market.”
Other factors affecting the economy include President Barack Obama and Congress, and their inability to make decisions on taxes, he noted.
“There is still a lot of risk aversion in this country,” said Doud. “Trillions of dollars are stashed underneath the mattress because folks aren’t sure what’s going to happen with taxes. That’s money that’s not getting invested into growing businesses, investing or hiring on new people. Obama and Congress need to get off the fence about taxes and make some decisions, so people can invest in our economy again.”
More troublesome for Doud is seeing a growing number of cows being sent to slaughter.
“We are seeing right now the liquidation of the beef industry like we have never seen before,” said Doud. “There are hundreds of thousands of producers across the country who live on acreages and have 5-10 cows. Those cows are like piggy-banks for these folks, as they also have jobs in town. When they need extra spending money, they take the cows to town. In this economy, what do you think they are doing right now?”
As a result, the number of cow-calf operations is shrinking. Cow-calf businesses are down 4.2 million head since 1996, making it the smallest cowherd since the 1960s.
“The problem we have now is that there is a lot more packing capacity with fewer carcasses to hang in the plants,” said Doud. “Packing plants have an excess capacity of 15 percent. Yet, there is no cowherd expansion in sight.”
Despite the decline in numbers, CattleFax is predicting some positive things for 2011.
“CattleFax forecasts a $60/cwt. average cow price for 2011; that’s a pretty healthy cow price,” said Doud. “Fat cattle will bring $95-$100/cwt. for 2011, with feeder calves bringing $123/cwt., up $6 more than this year. The big wrinkle will be corn prices; if they increase, the feeder calves will be cheaper.”
Doud also pointed out the impressive export numbers in the beef industry that producers should be proud of.
“We are smoking hot in what we are doing with exports right now,” said Doud. “It’s the best of times; we have never done better. Yet, we have to gain more global access. We don’t have access to China. That’s a $200 million opportunity.”
With cattle prices looking the way they do, there could be real opportunity for producers in 2011; however, it remains to be seen if enough ranchers will be able to take advantage of those opportunities
“It’s time to retain and rebuild, but will we do it?” asked Doud. “It takes 38 percent more credit/capital to operate in the current environment. We are going to have to continue to have conversations with our bankers about that. They have a right to be cautious, but we need to be allowed to keep doing business.”
With the world population growing by 70 million each year, the demand for food producers is going to become more important than ever before. Producers should hold on tight to their heifers and cows and hang on for the ride, saddling up to enjoy an optimistic 2011.
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