What is in this article?:
- Cow-calf producers should continue to prosper for at least the next few years, as beef exports boom and national herd numbers remain low.
- Current good prices for their cattle should remain in that lofty range for two years or even longer.
- Beef production is still an industry requiring tough decision-making. That is unlikely to change, no matter what the price per pound may be.
Beef production is still an industry requiring tough decision-making. That is unlikely to change, no matter what the price per pound may be.
Economics of beef
Still, Sinclair likes the economics of the beef business these days.
“It’s been amazing beef prices have held at these levels considering what grain and fuel prices have done. I think the Texas drought had a lot to do with it. My personal opinion, for what it’s worth, is that the beef industry is at a new level. These prices may not go back to the levels they’ve been at. World demand seems to be increasing,” Sinclair says.
In fact, global beef prices have increased 21 percent over the past two years, says Stewart, the CattleFax analyst. With increasing world population, that likely won’t stop, even if the price increase moderates somewhat, he says.
“Beef production declined over the past 3 years while the world added 300 million more people. Food prices are going to remain high and volatile. The tide is lifting. I see no reason for the dynamics to go the other way. I expect higher beef prices,” Stewart says.
The U.S. stands to benefit more than other beef-producing nations, and already has. In 2011, U.S. beef owned 33 percent of the market in the eight largest international beef buying countries, Stewart says. Compare that to five years earlier, when the U.S. claimed only 16 percent of those markets.
“That’s a very strong indicator of how competitive we are and what the future holds for us,” Stewart says.
The immediate outlook is about as good as it could possibly be for cow-calf producers, says Kevin Good, CattleFax senior market analyst. “I’m expecting positive margins and record high calf prices. We’re going to have a lot of 5-weight calves sell for $2 per pound this year,” he says.
Stocker/backgrounders should also profit in 2012, though their margins will be narrower than cow-calf producers’. The troubling side of the industry comes in the nation’s feedlot sector.
“Feedlots are going to be negative for the year. For them, risk management is the important thing,” Good says.
Feedlot managers will have to figure expenses carefully and buy cattle wisely.
“I expect a $300 per head range in highs and lows in 2012,” says Blach, the Cattlefax CEO. “The feeding industry has seen a 60 percent increase in credit needs since 2009. Fed cattle breakevens will be in the mid $130’s by summer.”
Blach cautions everyone in the beef business to keep a cool head.