Herd expansion is expected to peak in 2017.
Coming into the ninth month of 2016, cattle producers are faced with a tough cattle market, but promising future in commodity purchases for feed. Drovers Editorial Director Greg Henderson caught up with Chip Flory, host of Farm Journal’s Market Rally to discuss what producers can expect for the rest of the year.
The primary topic of conversation in the hallways of Drovers Cowboy College last week was the $3/head fall fed cattle took, says Henderson, making cattle health and animal welfare practices discussed during the conference important to keep cattle gaining on feed efficiently.
“Last year was a tremendous loss year,” says Henderson, with losses exceeding $700/animal. “That turned around and showed some modest profits earlier this summer/late this spring.”
However, cattle feeders are back in loss mode, he says, with feedyards on the lookout for cheaper feeder cattle.
“If you’re in the business of producing feeder cattle, of course that is not a good thing,” he says. “All segments in our industry need to be profitable in order for it to work for everybody.”
USDA has released record crop predictions, estimating a bumper crop of 16.859 billion bushels forecasted for 2016/17 corn supplies, according to the latest WASDE report. The surplus has led to a projected season-average price received by corn producers to be $2.90 to $3.50 per bushel, says the report.
While Henderson says cattle producers don’t want to steal the corn crop, the lower price of corn is good.
“Cheaper corn always helps those cheaper feeder cattle prices a little bit. We haven’t quite seen that yet, but we’re hopeful there will be a little bit of increase this fall,” he says.
Meat retail lag time
During the discussion, Flory brought up a question asked by people in different segments of the beef industry, asking “Seems to me, based on the calf supply that is going to be available [feeders] have to stay focused on demand and retail price and hope to move enough beef to get a recovery in the cattle price, right?”
According to industry experts, there is going to be about a three month lag time on prices being impacted at a retail level, says Henderson.
Drovers contributor and consulted economist, John Nalivka, president of Sterling Marketing, Inc., says the industry needs to focus on more than just the beef supply and beef demand, but instead focus on total meat supply.
“He says this year we are going to have 221 lbs. /person,” Henderson explains. “That is about an 8% increase from where we were in 2014. We’ve got more pork, more poultry and more beef on the market. And of course, beef is a little more higher priced than those others.”
Exports are up, imports are down
Year to date, beef exports are up 3% from last year, when they were down 12% from 2014. Japan and South Korea continue to be the biggest importers of U.S. beef, says the U.S. Meat Export Federation, bringing in 39,501 mt of chilled beef, valued at $223.5 million in July alone. According to Henderson, exports account 10-12% of domestic production, making them crucial for prices on home soil.
“2015 exports were the lowest since 2010, and we had record prices for beef,” he explains, adding that a strong dollar hurt beef exports. “We’re recovering from that. In fact, this year, we are expecting beef exports to be 8% higher this year. Up maybe another 6% next year.”
Beef imports are a different story, however, down 13% this year.
The beef herd isn’t done expanding
Since USDA no longer provides the July Cattle report, a mid-year inventory on where the national calf crop and cow herd stands, economists are looking at cow slaughter numbers to get an idea of where the industry is at.
“We are seeing cow slaughter up,” Henderson says. “Year to date, it is up 11% on the beef cow side, and dairy is down 1%. Some weeks, we have seen that beef cow slaughter up as high as 25%.”
However, says Henderson, this does not mean expansion is over, and cow slaughter numbers are inflated because older cows that were held over the last couple years when calves were worth record prices are just now making their way to town.
According to Nalivka, the January 1, 2017 inventory report is going to have the beef herd up 2% at 94 million head.
“He thinks that will be the peak number,” explains Henderson. “Following year of January 2018, we will be about even, and then the next three years will begin a liquidation phase.”
This is bad news for the industry, says Henderson, since beef production will increase as cows head to town on top of calves that are being produced, driving prices for feeder cattle and calves lower than they are now.
To hear the complete discussion, click the video below.