COMMENTS

Opinion
Aug 19, 2011
New definition of sustainability

This summer, sustainability has taken on a whole new meaning. Pasture conditions have been dramatically varied across the country, from record dry and hot weather in the south to cool, wet weather in the north and far west. Some areas have more grass than they know what to do with, while some ranchers have absolutely no grass at all.

Many cattlemen in the southern Plains and south have been forced to sell deep into their cow herds, knowing that restocking in the future will come at a much higher price level. Many have scoured the country for pasture, trying to keep their valuable cow herds intact regardless of trucking costs.

Feed stuffs are in short supply and for the first time in history, livestock feed will not be the primary use of the U.S. corn crop. USDA forecasts that ethanol will use 5.1 billion bushels of corn while livestock feed use will be 4.9 billion bushels. Those two industries will consume nearly 80 percent of the corn crop. However, they also report that corn use for cattle feed has declined 17 percent over the past four years as the cattle industry has started to rely on using more distillers grains and other feedstuffs. I’m still not behind this ethanol mandate; it changed livestock production far too quickly.

The last corn supply and demand report from USDA estimated that this summer’s crop will be 12.9 billion bushels, still a big crop from a historical point of view, but their 153-bushels-per-acre estimate points out that there may not be enough corn to meet demand. Corn market analysts expect more downward pressure on the size of this year’s corn crop.

Market analysts are expecting the July cattle on feed report to show the number of cattle placed in feedlots to be dramatic, with expectations ranging between 6 percent and 27 percent more feeder cattle placed in feedlots over 1,000 head. We know that the dry weather in the southern half of the U.S. has exacerbated placement patterns. The number of cattle on feed is expected to be 7 percent higher than a year ago, at roughly 2 million head; it would be the largest on feed number since 2003. Analysts expect marketings to be down 4 percent from last year. I’m confident that cattle feeders will manage the additional cattle with little impact to the markets.

The price of feed is becoming a bit overwhelming with corn in the $7 per bushel range compared to last year’s $3.60 per bushel. The price of distillers grains is also double last year’s level. Hay prices are over $200 per ton in many areas and even baled corn stalks are coming into big demand as cattle feeders search for enough roughage to adjust their feedstuffs and make this situation more bearable.

The current pasture and feed situation has damaged any chance of herd expansion for some time to come. Cattle prices are at all-time highs, but with the widespread drought in the southern Plains, any prior expectations for growth have been all but eliminated. These calf and yearling prices should be adequate to grow the herd, but few are stepping forward to do it yet.

The good news is beef prices have moved higher, with the boxed beef cutout pushing past the $180 level. Export markets have added tremendous value to the U.S. cattle industry and the old adage that high-priced feed makes high-priced cattle continues to ring true. June beef exports were over 81,000 metric tons, valued at over $400 million dollars. Year-to-date beef exports have added over $2.2 billion to the U.S. cattle economy, 41.5 percent more than 2010.

Canada was our largest export customer Japan was in second place, importing just over 15 million tons, which was 26 percent higher than June 2010. The first half of 2011 has seen exports to Japan jump 52 percent over a year ago. Mexico has slipped from our largest customer for beef to our third-largest.

Export markets are absolutely keeping U.S. ag product at a high level, but at the end of the day, sustainability isn’t about the level of the markets, but the level of the margin, which is all tied back to the price of feed. — PETE CROW

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