Senior analyst Kevin Good said the 2013 data showed 36 percent of total fed slaughter was heifers in 2013, a figure that dropped to 35.2 percent on Jan. 1 of this year, “the lowest it’s been in the last decade,” Good explained.
CattleFax estimates say beef supply should drop 4.5 percent, with retail values of beef rising 7 percent, leading to a strong demand year for 2014.
“We expect to see half a million head each of the next two years,” Good said of the cow herd. “That’s what it takes to go from liquidation to expansion.” The retention of cows and heifers will further tighten the supply of beef, Good added, and have a continuing impact on packers.
“From the last two years of what we harvested, we’re going to take 10,000 head a day out of the harvest mix.”
Within the next two years the industry will see a mix of fed and non-fed cattle being harvested, “and we may have to downsize packing plants by another 2, 3 or 4 plants.”
Good said the high beef prices over the past quarter have been driven by tight supplies after seven years of dramatic decline, as well as increased trade and stagnant production domestically from high input costs.
Competing proteins (pork and poultry) will increase their production faster than beef, which should lead to more Americans consuming more chicken. “That’s market share, but let’s not confuse market share with demand.”
CattleFax CEO Randy Blach said those factors build strong expectations for 2014. “We’re going to see much improved profitability for cow-calf producers, especially with improved moisture conditions.”
"These times we’re finally seeing some profitability that’s long overdue. Hopefully those are strong enough signals that we will in fact start to expand.”
Blach noted the abrupt change from 2013, when the feeding industry was struggling for profit. Today’s more affordable feed picture and quick sales for cattle have led to a rebound for feedlots. “But we need to keep this in perspective. We have too much capacity chasing this declining supply of feeder cattle.”
That puts even more necessity into a larger population of cattle. “The cow herd must expand while we have all the stars lined up for the next two, three or four years. If it doesn’t, don’t kid yourself, this industry won’t look the same five or 10 years down the road.
“We’ll have a smaller industry, and we’ll move from the center of the plate to more of a specialty market, if that doesn’t happen.”
Weather forecast: Conditions right for moisture
Feeding more optimism was the report from CattleFax weather analyst and Creighton University meteorologist Art Douglas, who said coastal measurements along South America and the Pacific show a return of El Nino weather patterns in the spring and summer.
El Nino historically means warmer waters through the Pacific and equator regions, building precipitation and moisture into the U.S. Douglas said data are showing a cycle similar to 2009-10 models, where drought shrunk and improved moisture through much of the country and into the West.
“Model wise we know El Nino is coming and it’s going to come quick and be coming by summer,” Douglas said. “In the Midwest, anytime you have a strong developing El Nino in summer, you have ideal growing conditions throughout. Temperatures are normal or below normal and precipitation is above normal.”
That trend will help recovering grazing areas in the Southeast and Southern Plains. Warmer temperatures from the East to West Coast will be ideal for spring field work, then turn into a good flow of moisture, especially from Texas to the center of the Corn Belt.
While the drought may linger in California and parts of the West for parts of spring, Douglas said higher-pressure ridges will develop to increase precipitation from California into Nevada and the Northwest states.
Exports still adding profit to inventory
The U.S. isn’t the only nation struggling to lift its beef production, said CattleFax trade analyst Brett Stuart, as other countries are likewise seeing high demand from population growth and higher personal incomes.
With 78 million people added to the world population annually, beef and protein supplies remain tight. As a result, the importing countries are taking more beef and protein from the producing countries.
“Flat production is the bottom line,” Stuart said. “We’re starting to be outbid by importing countries pulling that product away from producing countries.”
No country embodies that demand more than China, due to its limited ability to produce its own food system, poor infrastructure and the government’s strict ownership of land.
But demographics are changing in China, with rural flight to the urban centers and a surging number of middle-class consumers. Stuart said middle-class buyers represent 300 million in China’s 1.3 billion population, but “that class will increase to 640 million in six years – the equivalent of the entire U.S. population.”
Those people are hungry for beef, and they’re willing to pay for it. In the latter-half of 2012, China/Hong Kong became the largest beef importers in the world. “This demand is for real. It’s not a supply shortage. I can look at the per capita consumption and it’s fairly stable and the price is still going through the roof.”
China markets what’s called a beef leg. Stuart said its price, when converted to U.S. dollars per pound, went from $2.50 in 2011 to $4.98 this January. “These are people that live on average on one-sixth of our income and are paying virtually the same price for beef and it continues to grow.”
Australia is a key trading partner to China, which affects how much product is available for U.S. purchase to use in fast-food grinds. But China could open doors to U.S. beef in the coming future, although Stuart said such an announcement “doesn’t mean we load the boat.”
“If we hear that announcement, it’s a cautious announcement. It may take time to get that moving.”
Stuart added other factors facing global trade would include a higher U.S. dollar cutting into foreign buying power, no movement on Russia’s limits of U.S. beef, and a continuing climb of global value to U.S. beef – currently at $307 per head, for beef, hide and offal.
Commodity prices helping the bottom line
CattleFax grain market analyst Mike Murphy said corn usage in the beef industry will rise as affordable prices continue through 2014, and the corn stocks to use levels jump to healthy reserves thanks to last year’s strong harvest.
Rebuilt stocks had “a huge influence on the bottom line to the value of our animals,” Murphy said, “and we expect stocks to use levels to stay in sync, somewhere to that 12.5 to 14 percent level – double what it would have been.
“That will keep prices (for corn) in check at $4.65 to $4.75 range, with $4.10 being the main support level.”
Corn basis levels will also see relief farther into the summer, as the industry grows closer to harvest. Should the weather outlook come through with more precipitation, the national corn harvest could produce 14 billion bushels of corn. U.S. plantings this year should drop to 93.5 million acres, down from 95.3 million in 2013, CattleFax estimated.
Economics will boost U.S. plantings of soybeans up to 80 million acres, a jump from 76.5 million acres in 2013.
On hay stocks, the U.S. is building its supply thanks to recovered moisture, but Murphy said another big year of hay production is needed to balance the supply picture and build relief from high prices.
“If Mother Nature cooperates we’re on course to see that. As long as corn prices stay under pressure through 2014, we will see more pressure on hay prices from a U.S perspective,” he said, which will help the cow-calf operations. 
PHOTOS
TOP: Kevin Good
MIDDLE: Randy Blach. Photos by David Cooper.
