Bring on 2014

Dec 27, 2013

The year 2013 will be one to remember for cow/calf producers. We had a recovering drought and calf prices had a record long rally starting in May and reached new highs right on to the end of the year. Who would have ever thought that 450-pound steer calves would bring over $1,000 a head?

Cattle feeders, on the other hand, would probably like to forget 2013, as it brought one of the longest periods of feeding losses, while selling fed cattle at record high prices. Cattle feeding profits returned when feeding costs declined dramatically and about the time that the controversial feed additive Zilmax was taken off the market because of cattle well-being issues.

What’s ahead for 2014? The cow/calf sector should continue to have a strong market for calves and cull cows. We should even see prices advance a little bit. We have been seeing signs of herd rebuilding for the past few months, which will take some feeder heifers out of the mix and keep prices high.

The feeder cattle futures indicate a strong market for feeder cattle for this entire next year. The deferred months on feeder cattle contracts are showing $168.50 all the way out to November, 2014. Andy Gottschalk at Hedgers Edge said in his recent outlook report that “the initial price support for the spot contract $162.50 with longer term support at $157.50. In order to confirm another step up in this trend, the spot futures need to close over $168.50. Should this confirming price action occur, an upside target price of $174- $175 cannot be ruled out. Seasonally, prices are expected to advance into the spring. In seven of the previous 10 years, cash feeders during the second quarter have exceeded their first quarter average price.”

“The supply side of the feeder and calf markets remains positive. Herd expansion is likely to gain momentum in the New Year, limited only by forage supplies. Heifer retention will further restrict the supply of cattle available for cattle feeders. The phenomenon of owners retaining increased numbers of heifers is expected to develop, beginning the process of rebuilding the herd. Net heifer retention in 2014 could approach 400,000 head.”

Also, feeder cattle imports from Mexico are expected to decline another half-a-million head. This past year we imported 960,000 head of Mexican feeder cattle which was down 500,000 head from 2012. We are also bringing in more spayed heifers than ever from Mexico. The Mexican cattle industry has had its share of drought and has been forced to reduce their national cow herd. Mexico is striving to be more self-sufficient and grow their own cattle and beef industries.

The beef business in the U.S. has all the supply side components in place for prices to move higher. You take a historically low cow herd and reduced cow slaughter, take an additional 400,000 head of feeder heifers out of the feeder supplies, then another half-million-head decline in Mexican feeder cattle imports and this paints a supply side situation that won’t be corrected for many years. So I would expect feeder cattle and fed cattle prices to remain at these levels or higher for quite some time.

The folks at the Livestock Marketing Information Center have said that “U.S. beef production in 2014 is expected to decline dramatically, posting an annual decline of 6 percent to 7 percent, falling to its lowest level since 1993. If beef demand is rather stable in 2014 (both domestic and foreign), both beef and fed cattle prices have room to continue higher. Current forecasts put the 5-market average slaughter steer prices for 2014 5 percent to 7 percent above 2013’s and should average over $130 per cwt. for the first time.”

Demand has been remarkable for beef under the prevailing economic circumstances. And with the economy expected to grow in 2014 we should be in decent shape for demand. The average all-beef price has advanced to $5.01 per pound and was $4.80 a year ago. Beef posted a 21-cent gain for the year while pork has gained 28 cents. Gottschalk says the $5.1 average beef price will support a live cattle price of $136 and a beef cutout value of $208 to $210.

It’s going to be a good 2014 for the cattle business; cattle prices will be good and production costs should be lower, as well. So here’s to a profitable and happy New Year. — PETE CROW