Better times coming in the cattle industry
By Jean Caspers-Simmet
Date Modified: 01/27/2014 10:07 AM
ALTOONA — The recession and weather problems have slowed the return to profitability in the cattle industry, but things are changing, said CattleFax market analyst Lance Zimmerman.
Speaking at last week's Iowa Cattle Industry Convention at Prairie Meadows Events Center in Altoona, Zimmerman said better times are ahead but cautioned that producers in all sectors of the industry who can control costs, add value and manage risk will gain the most.
He forecasts a U.S. average price of $185 per hundredweight for 550-pound steers with spring highs of $215 to $220 provided there is adequate moisture in the Flint Hills and Osage country. For 750-pound steers, the annual average will be $164 to $166 per hundredweight. Fed steer prices will be less robust averaging $130 with a spring high of $135 to $137 and lows in the upper teens to low $120s.
Cattle and beef supplies will tighten in 2014, Zimmerman said. The cow herd should transition from contraction to stabilization to expansion from 2014-15.
Zimmerman sees smaller per capita net beef supplies continuing for two to three more years. A larger competing meat supply will remain a limiting factor for beef with poultry and pork ramping up supplies due to lower feed prices.
"Demand may be a tougher road ahead," Zimmerman said. "The leverage advantage may be at the end-user level in 2014, as we try to latch on to additional dollars in the best way we can."
Cow-calf producers should see a historically strong outlook for the next three to four years assuming the drought conditions subside and feed supplies replenish.
"Even though feed prices are dropping, it's the high-return producers who find ways to manage production costs while adding efficiency and quality who will gain the most," Zimmerman said. "Don't believe those articles that say that with lower corn and hay prices you don't have to worry about cutting costs as much. It's a lie. Year in, year out, the guy who can cut costs wins."
Marketing will be increasingly important, he said.
"Show buyers the value of your calves," Zimmerman said. "It pays."
Cow-calf producers must manage the breeding herd. They need to look at the value difference between buying bred cows and raising their own through heifer development. The best female value may not be close to home. The cost to drive to Missouri or Nebraska or Texas to get the right females may not be as much as it once was.
Producers need to look at opportunity costs to upgrade genetics. In 2014, the U.S. average utility grade cows will sell for $83 per hundredweight, up four percent from 2013. As expansion mode kicks in, bull and female prices likely will go up more between 2014 and 2015 than 2013 and 2014, Zimmerman said.
Stockers and backgrounders will see profitability tested for the next few years with increased competition for calves with cheaper feed yard cost of grains, especially if there is a historically large corn crop.
"Access to reasonably priced inventory will be difficult through at least 2015," Zimmerman said. "Continue to look for calves ahead of peak green grass demand periods."
Competition for affordable grazing land will continue to escalate, Zimmerman said. Backgrounders will need to maintain an adequate feed inventory in case drought conditions persist.
Profitability has eluded cattle feeders the last two years, Zimmerman said.
"But we finally turned the corner this fall, where they are finally making a modest profit of $5 to $10 per hundredweight on a cash basis," Zimmerman said.
For cattle feeders managing risk and volatility will be essential to staying economically viable in 2014 and 2015.
"Cost of gain has broken below $1 per pound, but the value is being bid back into feeder cattle and calves," Zimmerman said. "Risk in this area is over managing corn positions."
Managing cattle inventory will be essential going forward to keep from bidding away margins, Zimmerman said.