America’s cattlemen are facing extraordinary times. Under normal circumstances, the historic decline in feeder cattle supplies would dominate the discussion about industry trends. This year, however, any discussion of a cattle market outlook must begin with the effects of a devastating two-year drought, and its impact going forward.
“If soil moisture improves and pasture conditions begin to recover, beef cow numbers should stabilize next year and begin to increase by mid-2014,” says Doane market analyst Marty Foreman. “The first step is reduced cow slaughter rates along with increased heifer retention. However, this hinges on weather. So far there has been little improvement in drought conditions.”
Cattle markets were held in check all fall by the lack of moisture. USDA Market News reporter Corbitt Wall noted in his commentary last month, “Current stocker and replacement cattle purchases at every level — from a 300-pound calf to an older bred cow — probably have the widest range of expected return than any time in history. Even some moderate measurements of moisture should cause prices to soar past record levels, while continued dry conditions will limit spring grazing prospects and cause further sell-off of breeding stock.”
America’s beef cow herd has declined for six years in a row and 14 of the past 16 years. Lingering drought conditions over the central Plains states mean that trend will continue. Industry analysts expect the Jan. 1, 2013, beef cow herd will be down about 1.5 percent to approximately 29.5 million head. Fewer cows will mean fewer calves and, ultimately, fewer stocker and feeder cattle.
The silver lining in smaller supplies is that feeder cattle prices climbed to new record highs during 2012, and those marks are likely to be eclipsed again in 2013. But while higher prices are good for cow-calf and stocker operators, they mean higher input costs for feedyard operators. Historic feeder cattle prices coupled with higher corn prices will continue to make cattle feeding a risky venture in 2013.
Cow-calf producers are in the driver’s seat for 2013 and well beyond. The beef industry has a desperate need to expand the herd, but Mother Nature must cooperate. Even when the rains come, analysts recognize expansion will take years. Until then, cow-calf producers should enjoy good profits.
click image to zoom Cattle-Fax market analyst Lance Zimmerman says, on average, cow-calf producers earned $150 to $200 per head on their calves last year, and good profitability will continue through 2013. Prices for all classes of cattle are likely to continue moving higher, but the rate of increase is slowing as the high price of beef begins to affect demand.