In a webinar Tuesday, sponsored in part by Drovers/CattleNework, Kansas State University economist Glynn Tonsor, PhD, offered analysis of several issues affecting beef cattle economics.
Tonsor began with some of the underlying trends affecting the beef-cattle outlook for 2012 and beyond. With U.S. beef herds at their lowest levels since 1954, calf crops generally declining since the mid 1970s and feeder cattle outside of feedlots as of January 1 at historically low levels, supplies clearly will remain short.
Federally inspected cattle slaughter in the U.S. posted a 5.2 percent year-to-year decline in 2011 and likely will decline another 3.8 percent during 2012. Based on those reductions, the Livestock Marketing Information Center projects fed-cattle prices to average from $123 to $127 per hundredweight for 2012 and $129 to $133 during 2013. Calf prices, according to LMIC, will range from $156 to $164 per hundredweight for 2012 and $158 to $168 during 2013. Tonsor notes that these projected prices are annual averages and probably are fairly conservative – actual prices at times could climb considerably higher.
So will these signals provide enough incentive for cow-calf producers to begin expanding their herds? The January 1 Cattle Inventory report from USDA showed some sign expansion has begun, with beef replacement heifers up 1 percent nationally from a year ago. Regional differences were large, however, reflecting the role of moisture and forage supplies in expansion decisions. The states with the largest increases – Nebraska, South Dakota, Colorado, Wyoming and Iowa – experienced favorable weather conditions in 2011. In the states with the largest declines in heifer retention – Texas, Oklahoma, Missouri, Arkansas and New Mexico – drought has stifled any thoughts of expansion.
But overall, Tonsor says, the cow-calf sector is poised for several years of excellent returns as heifer retention will drain from already tight calf and feeder-cattle supplies. On average, cow-calf producers generated profits of about $80 per head in 2011, and those profits are likely to exceed $150 per head over the next few years. And again Tonsor stresses these are averages – producers with low production costs and high-value calves could see considerably higher profits. “Returns over cash costs may set records in 2013 and 2014.” he says.
Tonsor also notes that K-State economists have developed a spreadsheet decision tool to help producers evaluate the economic opportunities in adding replacement heifers. A link to the spreadsheet is available in the resources section of our MoreCowsNow website.