Jim Robb: 2012 cattle prices hinge on corn crop
January 26, 2012
The cattle market remains volatile as market analysts try to determine how much corn will be planted in 2012. With the U.S. becoming an ethanol-producing country, there is a lot of volatility in calf and yearling prices, according to Jim Robb, director of the Livestock Marketing Information Center (LMIC) in Denver, CO.
Robb presented an overview of beef cattle markets, and how they affect profitability during the Colorado Farm Show in Greeley, CO.
Until ethanol became a major player in the U.S. corn market, producers were better able to predict calf and yearling prices, Robb explained. “If corn went up 10 cents a bushel, five- and six-weight calves would drop a $1 a hundredweight if everything else stayed constant,” he explained. “Now, the ethanol industry drives the price of corn.”
Robb said that while corn was $6.20 to $6.30 a bushel in 2011, 2012 prices will be dependent upon how many acres are actually planted. Robb anticipates USDA’s planting intentions report, which will release next month, to indicate that somewhere between 92.8-94.8 million acres of corn will be planted in 2012. In 2011, 91,921,000 acres were planted, according to the USDA National Agricultural Statistics Service.
Cattle prices for the coming year will hinge upon which of these numbers is more accurate, the analyst said. “If it is close to 94 million acres, and the corn yields anything over 158 bushels, corn may go down to $4 a bushel for a short period of time at harvest,” he explained. “However, if it yields closer to 128 bushels per acre, corn may stay closer to the $6 mark.
“If we get anything over 158 bushels per acre, it will be good for the livestock industry, and will help float calf and yearling prices,” he said. “It is going to be the wall or the opening of the door for cattle prices in the coming year.”
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Robb told cow-calf producers he anticipates good calf and yearling markets for 2012. “I didn’t anticipate a month ago seeing $1.71 southern plains five- and six-weight calves this month. Especially since they just went through a drought,” he said, anticipating calf prices to be at $1.60 and above this fall, and even higher in 2013.
He also told producers not to expect 55-cent cull-cows again anytime soon. In 2013, he predicts cull-cows to be over 90 cents a pound. “We have continued to run up calf and yearling prices to the point where the U.S. economy might have to catch up or corn comes down before we see prices go much higher.”
Unfortunately, not all segments of the cattle industry are seeing a profit. Robb said cattle feeders and packing plants are losing money.
“The feedlots are losing piles of money right now,” he said. “We are going to see some feedlots going out of business in the coming year.” The same holds true for packing plants, who were losing $100 on every carcass processed last week.
Robb said he predicts beef production will continue to decrease at least through 2013. “I don’t think we will see an increase in beef production until at least 2016,” he said. “Until that happens, supplies will remain tight.”
U.S. producers would have to save back 300,000 replacement heifers just to stabilize beef numbers in the country, Robb said. “Basically, we would have to get 300,000 more heifers in the system just to stop declining,” he noted. “There is just not much quick rebounding in this industry anymore. The bottom line is, at best, we have several more years of tight supplies.”
On a positive note, Robb said Oklahoma and Texas are receiving a little rain, but pasture recovery will be more than a one-year process. “All over the U.S., we are losing a lot of pasture to cropland because the U.S. is becoming a corn growing country.”
Some Texas and Oklahoma ranchers are also benefiting from an oil and gas boom, Robb continued. “Some Texas and Oklahoma ranchers have sold all their cows and are receiving these lease payments for oil and gas like they’ve never seen before,” he explained. “When the time comes, they don’t have to go to the banker to restock. They have money burning a hole in their pocket.”
In the meantime, American per capita consumption of beef will drop below 55 pounds this year, which is a level the country hasn’t seen since the 1950s. “We have a growing population, but we also have growing exports,” Robb said. “Foreign consumers are bidding beef away from American consumers because they are willing to spend more for it.”