Timely Topics

Posted by: Sarah Drollette on Jan 1, 2010

What Does the New Year Hold for Beef Producers?

 Dillon Feuz
 
This past year is probably one that most cattlemen are glad to have over and I am sure are looking for better things in 2010. After averaging near $93 per cwt. for fed cattle in 2007 and 2008, prices declined to only average $83 in 2009. After a disastrous 2008, where feedlots lost on average over $100 per head, that was followed by only a slightly less disastrous 2009 where my model would predict feedlots lost about $85 per head. Those losses are taking a toll on the feedlot industry. If 2010 is not a better year, there could be a large number of feedlots that will not survive.
 
The cow-calf industry didn’t fair much better this past year. Winter hay feeding cost for the 2008-09 winter was probably the highest many producers had seen. Early summer contracting opportunities were few to be found and not that attractive of a price. Summer video auction sales were generally down in volume and price from the prior year. When fall came, prices were no higher, and in many instances, were lower than the prior year. It is likely that most cow-calf producers will have been less profitable in 2009 than they were in 2008. Perhaps that sentence was poorly worded: a better choice of words might have been many cow-calf producers lost more money in 2009 than they did in 2008.
 
What hope is there for 2010? You are probably tired of hearing this, but much of your hope for better prices will be determined by the overall economy. If people are still out of work or concerned they might lose their job, it is a good bet they won’t be spending a lot of money on steak. Not only will consumers continue to buy cheaper beef products rather than higher priced beef products, some will also switch more of their meat purchases to some of the other, cheaper meats (pork and poultry). Without some help from beef demand, any price rally may be short term and tempered by the inability to move beef.
 
However, with that being said, the beef industry is in a good position as far as supply goes. The actual USDA numbers for January 1 inventory will not be released until February, but the beef and dairy cow herds in the US are sure to be smaller than a year ago. Smaller herds mean fewer calves and feeders for this fall, so that should help calf prices. Year over year cattle on feed numbers should also tend to be smaller and so we should be seeing less beef on the market. Again, this should tend to support beef prices at higher levels than were seen in 2009 so long as beef demand is at least stable.
 
There also appears to be some positives on the export market that could also support higher prices. Some global economies may be recovering quicker than the US economy and that could help exports of beef. Pork and poultry exports could also increase. That will tend to support higher US pork and poultry prices and higher pork and poultry prices help support higher beef prices.
 
This longer term picture for all of 2010 just described is what I would call cautiously optimistic. The US economy is the biggest unknown and I think worst case scenario is that it will not improve much from the present condition. I don’t for see a turn for the worse in the coming year. Therefore, if domestic beef demand can remain stable, beef export demand improve and with a tight supply scenario, there should be some price improvement on the horizon. 
 
In the short term, fed cattle prices have recovered about $5-6 per cwt. from the lows in early December. If the market could put on another $3-4, feedlots should be breaking even.  With the winter weather conditions in the northern plains, feedlot gains have been reduced and fed cattle marketing weights are decreasing. Lighter fed cattle weights coupled with reduced fed cattle marketings is adding strength to this market.
 
For ranchers who have retained calves to sell them after the first of the year, that market has gained about $10 per cwt from fall lows in October to prices reported last week. I would think based on current forage and grain prices, that some one who has fed calves for 60-90 days could sell them in the current market and have a positive return to that backgrounding program. It is likely that calves sent to wheat pastures or corn stalks, will also show a positive return when marketed over the next couple of months.
 
Feeding cull cows this winter should also show a positive return. Cull cow prices have strengthened $4-5 per cwt. since November. Those prices will probably continue to increase for another couple of months. There could probably be a positive return to feeding cows 90 days on a primarily hay ration as well as a positive return from feeding cows for a larger rate of gain using a corn based ration.
 
If these positive price trends that we have seen in the last couple of weeks can continue into spring, not only might cowboys be seeing green grass again, but they may also have some green to put in their pockets.

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