Record beef prices ahead with declining beef supply

News
Feb 15, 2013

Cattle and beef prices in the U.S. will reach record highs this year, following 2012’s drought and national cattle herd that is the smallest since 1952, according to CattleFax market analysts.

Creighton University Professor Emeritus Art Douglas told attendees at the 2013 Cattle Industry Convention that there is a chance some regions of the U.S. will see a return to more normal precipitation patterns during the upcoming spring and summer growing season. That was welcome news to participants, many of whom have been enduring an ongoing, multi-year drought which has affected more than 70 percent of cattle country.

Douglas was cautiously optimistic on this year’s forecast. “We really don’t know where we’re going right now with this La Nina situation,” Douglas said. “But I think we’re going to see more La Nina with more drought concentrated in the central Plains.

If precipitation returns to near-normal levels for the 2013 growing season, CattleFax predicts farmers in the U.S. will plant a record number of acres in both corn and soybeans. CattleFax Grain Market Analyst Chad Spearman said that would lead to lower feed grain prices this year.

“If we see anything close to trend line yields, we’ll see relief on the supply side and the result will be price relief, particularly in the second half of 2013,” said Spearman, who added that the additional moisture will help mitigate hay prices after harvest begins this summer.

“With a little help from Mother Nature, we will be in much better shape with regard to hay supply and prices during the second half of the year,” he said.

Although input costs may provide relief, analyst Mike Murphy provided a note of caution, saying that a possible economic slowdown could put pressure on beef prices and demand among consumers. He projected that net income in the U.S. would be flat, with incomes struggling to keep pace with inflation.

However, he predicted beef exports would continue to provide support for prices.

‘We expect to see an increase in exports, due in large part to an increase in shipments to Japan since that market recently opened to beef from cattle under 30 months of age,” said Murphy. “Imports will also be up substantially as well, due to tighter supplies in the U.S. at a time when we have strong demand for 90 percent lean trim.”

Overall, CattleFax Senior Analyst Kevin Good predicted beef production in the U.S. will fall, with per-capita supply declining 2.2 percent. However, he said the decrease will be partially offset by increasing carcass weights. CattleFax projects the Wholesale Beef Demand Index will decline by 1 percent, due to a 1 percent decline in real income of consumers.

Good said he expects that there will be a shift in leverage with the loss of packing capacity in the U.S. after the closure of a southern Plains packing plant earlier this year.

“As a result of that decline in capacity, feedlots will get a smaller percentage of the wholesale value of beef,” said Good. He added that Cattle- Fax is projecting average prices will be higher for all classes of cattle during 2013 compared to the prior year.

Prices are expected to average $126 compared to $123 during 2012, an increase of 2.5 percent. Yearling prices are expected to average $155, an increase of 5 percent from the 2012 average of $147. According to Good, calf prices will average $175, up 5 percent from last year’s average of $167.

“The cow/calf sector will remain in the driver’s seat during 2013, particularly if they have feed,” said Good.

CattleFax CEO Randy Blach summarized the year ahead by saying it will be a difficult year for margin operators in the cattle business.

He emphasized the importance of risk management due to continued volatility and rising capital requirements. Packer margins, though, should see some improvement as the result of the decline in capacity, a trend that he expects to continue.

“Don’t be surprised if we see the loss of another one or two plants before we’re done with the consolidation phase,” said Blach. Likewise, he said the industry can expect cattle feeding capacity to continue its decline due to the current market situation.

According to Blach, grocery shoppers can expect beef retail prices to rise as much as 4 percent in 2013. Retail prices hit a record high of $5.15 last November, and are remaining above $5 so far this year. In addition to record beef prices, Blach said pork and poultry prices have also increased in the last few months.

“The demand side of the puzzle doesn’t appear to be any better than steady. We’re just not going to have as much disposable income,” he added.

“We’ve got to see expansion of the herd. If we were to start expanding tomorrow, we’re 30 months down the road before we can really impact production. So, prices are going to stay elevated for quite some time until we can respond to Mother Nature’s signal to re-grow the herd,” said Blach.

According to Blach, beef prices are putting downward pressure on demand.

“Packers didn’t make any money. Wholesalers didn’t make any money. Retailers didn’t make any money. Does that tell you prices are running up against a little bit of a ceiling, there?” Blach said.

CattleFax app

In addition to some market and weather information, Blach shared news about a new CattleFax mobile app that features industry news, market information, futures markets, weather and animal health information. The app was released during the convention, sponsored by Zoetis and is available from iTunes, GooglePlay and www.CattleFax.com.

“Our job at CattleFax is to help producers operate as profitably as possible,” says Blach. “The timely market information, analysis and research we provide through the app can help beef producers with any size operation make better decisions and, ultimately, better profits. This new app puts informa tion

into producers’ hands as quickly as possible in an easyto-use format. And thanks to the support of Zoetis, we’re able to supplement market data with the latest cattle health and management information.”

The app offers producers access to a variety of marketbased decision tools, including:

• Real-time futures and market prices for popular commodity and equity markets

• Local and national weather

• USDA market reports

• Industry news feeds

• Breakeven calculates for the purchase or sale of calves, feeder cattle and fed cattle In addition, animal health, performance, management information and videos are available in the app’s Animal Health Center. Upcoming content includes:

• Selecting sound reproductive technologies

• Optimizing bull decisions

• Formulating profitable heifer and calf decisions

• Getting employees started off right

• Managing bovine respiratory disease effectively The app also allows Cattle- Fax members to access exclusive news, data and analysis.

The members-only sections include analyst articles, fed cattle trade updates, feed yard inventory data, U.S. cattle prices and detailed weather analysis by Dr. Art Douglas, a meteorologist with Creighton University.

As a special offer, anyone downloading the app in February will receive complimentary access to all CF Mobile features during the month simply by providing an email address.

Those interested in becoming a CattleFax member and gaining access to this additional content can join via the app or by calling 800-825- 7525. — Traci Eatherton, WLJ Editor

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