Chad Spearman, CattleFax, outlined his forecast for the cattle and beef market in 2014 for attendees of the 2013 Range Beef Cow Symposium. Cheaper feed costs, a reduction in cattle supplies, and an increase in beef exports were the three key drivers Spearman identified that will support slaughter and feeder cattle prices near record highs for the next year.
Corn futures prices dropped from over $7.00 a bushel during summer of 2013 to harvest lows around $4.00 a bushel in November 2013. Spearman expects corn prices to range from $3.50-$5.50/ bushel over the next two years. For cattle feeders, that lowers feeding cost of gain from $110-120/cwt to $75-85/cwt. One of the reasons behind the lower corn price is the expectation of a record global corn crop this season. The global harvest of corn during the 2013-14 marketing year is expected to be near 966.6 million metric tons, up 12% from the previous year.
One of the reasons behind the decrease in cattle numbers is the natural disasters that have occurred in recent years. Of particular concern was the widespread drought that has affected one or more key production areas of the country. Over the last decade, the number of beef cows in the U.S. has declined by 3.6 million head, or 11%, as producers have struggled with high feed costs brought on by drought and increased competition for feedstuffs like corn. Just this last year, even though the industry appears to be on the cusp of expansion, the national beef cow inventory declined another 255,000 head, or 0.9%. South Dakota experienced a larger (3.1%) decrease in beef cows in 2013. Of the estimated 53,000 head decline in the state last year, an estimated 20,000 head alone were lost in the October blizzard. Like many market analysts, Spearman expects the beef cow inventory to stabilize and eventually grow by 2015 as long as weather is near normal. Realizing growth in cattle numbers and eventually beef supplies will take two to three years due to the biological lag between breeding decisions and slaughter of fed cattle. In addition, competition for heifers for replacements further restricts cattle supplies in the short run.
Spearman also discussed the opportunity for increased U.S. beef exports to China and Hong Kong, as well as Taiwan and other developing Asian countries. In 2013, Hong Kong emerged as the fourth largest export destination for U.S. beef. With growing Gross Domestic Product (GDP) and per capita beef consumption in developing Asian countries, U.S. beef export demand should continue to grow, ultimately supporting beef and cattle prices in the U.S.
Cow-calf producers will have good opportunities for profitability over the next couple of years, assuming drought conditions do not occur and feed costs remain low. For stocker operators, access to feeder cattle at prices that still afford a profit opportunity may be difficult to achieve during the next couple of years. Spearman advises that one of the keys for profitable stockers will be to procure and own inventory well in advance of the demand for green grass. If there is as large a corn crop in 2014 as currently predicted, feedlot cost of gain may drop to cost of gains typical from stocker grazing programs. Overall, the decrease in the U.S. cattle supply, decreased feed costs, and increased demand for U.S. beef exports, should support cattle prices near record high levels in 2014 and generate profits needed for growth over the next couple of years.
Source: Shannon Sand