A Christmas prayer
I wish everyone a Merry Christmas and this year we need to pray; pray for peace, pray our government gets its fiscal house in order and, perhaps most of all, pray for lots of spring rain. I often think about cow/calf producers using all the resources they have to keep their cow herds intact so they can get that next $1,000 calf, but if we don’t get the spring moisture, well, you know the rest of the story.
We’re just about to close out another year and beef production is only 388 million pounds short of last year’s beef production numbers. Ironically, we did it processing 1.2 million fewer cattle passing through packing plants. Carcass weights were much larger than normal. Packers have been much more forgiving and not dolling out as many discounts for heavy cattle. One feeder told me that on his last grid negotiation, the packer gave him a 7 percent allowance for a carcass over 1,000 pounds, showing that packers need the tonnage, too.
It’s refreshing to see packers and feeders working together to get out of this mess they are in. Packers and feeders have had a tough year and I’m sure they want to see 2012 end, from a business point of view.
Getting the Choice cutout values up over the $200 range seems to be a struggle and that is where feeders and packers will have to be to make a profit. The packing industry will slow down production and try to get the cutout over $200 this holiday season. Many market watchers expect to see a $200 cutout sometime around March, and a good storm could help get it there. Then the big question will be, how will the consumer respond? Whether or not they will pay higher prices for beef remains to be seen. It just amazes me that fed cattle are selling at $1.25 a pound and nobody is making any money, except for the cow/calf producer.
Cow/calf producers, on the other hand, have had one of the best years ever in terms of price. If one was able to keep his herd intact, have some grass and make some hay, it should have been a good year. But we also know how dry it has been, which has created a lot of extra feed expense for many.
When you get those cows through winter, and have calves on the ground, it will be worth it. This cattle market is likely to remain good for cow/calf producers for the foreseeable future. And once we get our feed resources back in healthy condition, the entire industry should be in much better shape.
The Dec. 1 Cattle on Feed report came out last Friday; it appears that we will have 7-8 percent fewer cattle in feedlots and placements are expected to be down 10 percent, with marketings about even with last year. I would call it a favorable report going into winter and spring. Let’s hope cattle feeders will see some black ink soon so they can keep buying those $1.50 yearlings next summer.
The year-to-date cow slaughter is 12.6 percent below last year’s pace, which was a disaster for many cowherds in the southwest when they had to early wean and send over a million cows to slaughter. Derrell Peel, an Extension livestock marketing specialist at Oklahoma State University, said that at the current pace, 2012 beef cow slaughter will be over 11 percent of the Jan. 1 cow herd inventory.
“This will make the fifth consecutive year of double digit beef culling rates. The average annual beef cow culling rate is 9.6 percent. In previous liquidation phases, beef cow culling has increased over 10 percent per year for only one of two years. Five years in a row of double digit beef culling has never happened since beef cow slaughter data became available in 1986. The liquidation in 2012 is less than 2011 and the beef herd is expected to be down roughly 1.6 percent on January 1, 2013 inventory report. In order to halt the persistent beef cow liquidation, beef cow slaughter will need to drop by 13 percent or more, year over year, for each of the next two years. Beef cow culling rates usually drop to under 9 percent for two to four years during herd expansions. Drought will determine whether that process can begin in 2013,” according to Peel.
It’s going to be a tough thought to breed heifers this spring unless we get the magical moisture we need, so I would expect not to see any growth in the nation’s cow herd. But when hay stocks are back to normal and the moisture patterns are a bit more predictable, it would be time to go big on heifer retention.
The elements that control this business are out of our control, so the best thing I can think of is to pray this Christmas and pray that Mother Nature takes good care of her land stewards. — PETE CROW