With the Jan. 1, 2013, total of all cattle and calves at 89.3 million head – the lowest reported number in over 60 years – the industry is very short on calf supply. In addition, lack of moisture has created poor pasture conditions in most areas, driving the demand for high priced feed. Together, these conditions have driven cow costs to all time highs. With most producers’ costs between $500 and $600 per cow or even more, not much incentive exists to expand the cow herd. The result is a decline in beef cow numbers of 3 percent to 29.3 million cows in 2012 and a calf crop for 2012 that declined an estimated 3 percent from 2011.
What kinds of challenges and opportunities does this bring to producers trying to decide whether or not to be in the cattle business?
Cow/calf producer considerations:
Higher calf prices
If the 2013 corn crop yields improve from 2012 to near long-term averages in 2013, then the price of calves will move higher. This will make it very difficult to keep heifers for replacements.
Lack of supply for replacement females
With the value of a yearling heifer near $1,000 and the prospects of investing another $500 in the heifer before getting a calf, it becomes challenging to keep a heifer for a cow.
Challenges borrowing money
With the price of cows at near record highs and prospects of moving higher, many producers are struggling to obtain financing.
If cow costs are kept in check and good calves are raised, then margins should be good for the cow inventory for the next few years.
Production time frame for heifers retained at market highs
Typically, heifers retained at a time of high calf prices are at peak production when prices are lower.
Stocker operator considerations Higher purchase prices
With fewer calves available, the purchase price for calves should be higher.
Higher prices bring more risk. Health and price risks will be challenging as the value of each calf is greater.
Opportunities in value of gain
With feedyard costs of gain exceeding $1 per pound, there will be profits for those operations with grass or cheap cost of gain.
Continued margin opportunities
Fluctuating prices will create opportunities for significant margins in stocker cattle.
Many of these issues should continue to challenge producers while also providing opportunities for the astute producer, as it will take several years to rebuild the cow herd. If the rebuilding started this year with the additional retention of the spring 2013 heifer crop, then it would be fall of 2015 before those heifers would provide additional calves for the market. In addition, the overall market will have to deal with the lack of those heifers kept for replacement at the same time. Many of the areas that typically have significant numbers of beef cows are either still in drought or lack good grass. It will take time for this situation to change and will require good management to make it through successfully.
Source: Steve Swigert