Hold on tight

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2012 promises to be quite a year for the U.S. beef business, with the cow-calf sector poised for record returns and incentive for growth, analysts told a standing-room crowd at the Cattle-Fax Annual Outlook Conference during the Cattle Industry Convention last week.

The team of analysts outlined trends in weather, grains and energy, international trade and U.S. cattle numbers, with all the signs pointing to good, although volatile times for U.S. beef producers. Following are some highlights from the conference:

  • Climatologist Art Douglass, PhD. retired from Creighton University, notes a shift away from the “La Nina” weather pattern toward “El Nino.” This shift probably has begun already, helping account for recent rains in Eastern Texas and other areas under severe drought stress.
  • Southern Plains winter wheat prospects are improving with recent rains.
  • For February, mild weather likely will persist over much of the nation, and drought continues in West Texas and areas of the Southeast.
  • This spring will bring cool, wet weather to the Northern Plains and Midwest, while dry conditions persist in West Texas.
  • The summer is likely to be cool and wet for much of the U.S. West Texas could see some drought relief by fall.
  • In grains, Mike Murphy says continued short supplies and stocks-to-use ratio for corn will keep corn prices between about $.5.50 and $6.75 per bushel for the current crop.
  • High corn prices probably will encourage farmers to shift some soybean acres to corn this spring, bringing corn acreage to around 94 million acres. A trend-line yield of 161 bushels per acre would produce a record crop.
  • If weather cooperates, we could see stocks-to-use ratio improve with the new crop, and corn prices during the 2012-2013 marketing year could range between $5 and $6.50 per bushel.
  • Brett Stuart says we exported a record $4.7 billion in beef value during 2011, adding an average of $261 per head to fed-steer prices.
  • Global food prices will remain high and volatile through the next few years.
  • Global beef demand will continue to increase. From 2002 through 2006, global beef production was increasing and prices were rising at the same time, suggesting strong demand. Since 2006, global production has declined, pushing prices even higher.
  • Brazil, one of our top competitors in the export market, is in a herd-expansion phase. However, economic growth in Brazil has improved domestic beef demand, leading to a trend toward lower beef exports.
  • U.S. beef exports probably will increase by about 11 percent during 2012, following a 22 percent increase in 2011.
  • Kevin Good says cow-calf producers will have strong incentive to expand their herds in coming years, provided weather allows it. Expansion already has begun in the Northern Plains with higher heifer retention.
  • U.S. cow slaughter is likely to decline by 600,000 head in 2012 and 800,000 head in 2013.
  • More heifers entering breeding herds, coupled with lower cow slaughter will reduce U.S. per-capita beef supplies from 57.3 pounds in 2011 to 55.8 pounds in 2012 and 53.7 pounds in 2013.
  • Cattle prices were up by 20 percent during 2011, while wholesale beef prices increased by 15 percent and retail beef by 10 percent, as retailers resisted passing too much of the increase on to consumers. Highest retail price increases were for 90 percent lean grind up 20 percent, and chuck, up 26 percent. Rib prices declined by 3 percent during 2011.
  • If demand remains stable, Good says fed-steer prices will average around $122 per hundredweight during 2012. Assuming a typical 20 percent spread between the year’s high and low prices, fed steers could range from about $110 to the mid $130s per hundredweight. That’s a $300 per-head risk, Good notes.
  • 2012 will bring record-high prices for all classes of cattle, with calves averaging as high as $175 per hundredweight and some selling at significantly higher levels. Yearlings will average about $150 per hundredweight.
  • Feedyards will struggle to find profits amid high breakeven prices. Stockers will be profitable, but less so than recent years due to the high calf prices.
  • Cow-calf producers face excellent profit opportunities as record high prices more than offset higher input costs.
  • Cattle-Fax CEO Randy Blach notes continued risk in the market while also stressing opportunities. Open interest in commodities futures are at record levels, creating significant volatility.
  • Since 2010, weekly changes in corn futures prices have impacted feedyard cost of gain by $20 per head or more 30 percent of the time.
  • Credit requirements for feedyards have increased by 60 percent since 2010.
  • Overall, though, Blach says U.S. beef herds need to expand to meet demand and retain market share. Currently, he says, U.S. beef, pork and poultry account for about 28 percent of global meat trade. With global populations growing by 700 million over the next decade and global economies expanding, U.S. producers must bring another 3 million to 4 million cows into production over the next 10 years just to maintain current market share!

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