Expect high prices, low returns

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Prices for all cattle and calves are expected to remain strong throughout 2013, with analysts predicting prices to set new record highs this spring. Unfortunately, those prices will not do much to improve profitability. That’s because input costs, especially feed grains, have increased enough that margin operators will continue to struggle this year.

Cattle-Fax CEO Randy Blach told cattlemen attending last month’s Cattle Industry Convention in Tampa, Fla., that prices for harvest-ready cattle could average $126 per hundredweight during 2013, up $3 per hundredweight from last year.

“We’l l see record-high fed-cattle prices at some point here in the spring where we’ll see the market top the $130 level of last year,” Blach said. Those project ions were also supported by USDA’s February forecast that projected slaughter steer pr ices in the $124 to $132-perhundredweight range during the second quarter of 2013.

Despite those high prices, Blach said, “it will be difficult to make any money.” That’s because the industry will also face record-high breakevens.

In fact, record-high prices may not cover breakevens on many cattle sold this spring, and Blach said cattle feeders are likely to lose an average of $56 per head during 2013, according to Cattle-Fax projections. That would follow average losses of $79 per head during 2012 and $25 per head during 2011.

“The next 24 months are likely to be as difficult for margin operators as any time in history,” Blach said.

Declines in the U.S. cattle herd over the past several years have squeezed both the feeding and packing industries. Blach said overcapacity in the packing sector is increasing rapidly. In 2011, Cattle-Fax says the packing industry had 6 percent overcapacity for fed cattle, 10 percent during 2012, and estimates the percentage will climb to 12 percent during 2013. Similarly, Blach said the feeding industry has “25 to 30 percent excess capacity.”

While the current situation and outlook is grim, Blach sees opportunity for U.S. beef producers, especially through exports. With just 4 percent of the world’s population, the United States produces 29 percent of the world’s beef. And, Blach said, U.S. beef and offal exports “contribute $277 to the value of every fed steer and heifer in the United States.”

Blach said that value has increased $100 since 2003 when America saw its first case of BSE. “That value is going to continue to grow and access to (export) markets is key.” He added that within five to 10 years exports could consume 20 percent of total U.S. beef production.



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