CattleFax analyst Chad Spearman told producers Dec. 5 at the 23rd Range Beef Cow Symposium in Rapid City, South Dakota, the series of challenges that hit the industry over several years has suddenly broken amid a brighter outlook for 2014.
“There’s going to be a lot of opportunity. That opportunity never comes without risk,” Spearman said. “It’s all looking pretty optimistic, especially as we shift down to the level of the cow-calf producer.”
Spearman reviewed several indicators of a stronger market for the cow-calf and feeding markets, with some cautions for stocker operators.
Weather and corn
Spearman said weather records showed 2013 as a solid year for precipitation and vegetation growth, especially Southern Plains, Southeast and Northern Plains. “The area where the bulk of the beef herd resides has improved substantially,” he said.
The water and grass worked wonders on this year’s corn crop.
Corn’s volatility started around 2008 with the ethanol boom, and became more intense with 2012’s drought. But that trend forced other countries to boost production – as did the U.S. plantings.
The U.S. currently has a 14 million bushel crop, helping supplies recover substantially, Spearman said, “and that’s going to limit corn prices for the next couple years.”
Without any major drought interruptions, corn should stay between $3.50 and $5.50 per bushel in coming seasons.
“As I look at spot corn futures prices, they’ll be well supported at 410 to 425, with a spring rally potential to 475 or 490, but not to 5 and a half.”
Feeder cost of gains
That feed reduction comes at a critical time for feedyards still wrestling with excess capacity from declining herd figures. Price reductions for corn have pushed feeder cost of gains “back to what pasture cost of gains are going to be,” he said, calling it a significant turn from what feeders faced two or three years ago.
“From a cow-calf, cattle-feeder, or stocker perspective, or any livestock producer in general, feed costs look a whole lot better.”
Spearman stipulated that exists for energy and starch feeds. But protein feeds will remain elevated, probably into spring and possibly longer.
Herd expansion and feeder capacity
Drought, feed prices and management issues led to a heavy cull pattern the past several years. That should begin to taper off in the coming year. While predicting a national beef cow decline of around 300,000 head on Jan. 1, 2014, the trend should reverse.
“The opportunity is here that we may finally see inventory stabilize and actually see an increase on Jan. 1, 2015.”
As the industry tries to find ways to stabilize national herd numbers, the feeders and packers will continue adjusting their infrastructure.
Overcapacity forced the closure of a Cargill packing plant in Texas earlier this year, and several feeders began downsizing or moving into backgrounding work, thanks to more bunk capacity.
“When you have more bunk capacity than cattle, it’s very tough not only with record feed costs, but also to procure cattle to place on feed that were not losing money the day you bought them in,” Spearman said. “There are more hands trying to buy them than there have been cattle to sell them.”
Beef demand
While the lower herd size and high slaughter trends have created higher calf and beef prices over the past four years, Spearman offered caution as they related to beef demand.
The per capita U.S. net beef supply is currently at 56.2 pounds per capita, and will keep dropping over the next two years to 51.7 pounds, Spearman said, thanks in large part to more exports of U.S. beef.
The trade boom will only push beef prices up higher at home. Meanwhile affordable corn will help pork and poultry ramp up production – something the beef industry hasn’t done yet.
This leads to more price issues at the meat case for the American buyer.
“When a shopper goes to a grocery store looking to spend 7 dollars, how are they going to spend that? By buying one steak or 30 drumsticks?”
Spearman said exports will probably finish with a 3 percent increase in 2013, with a forecasted growth of 2.5 percent in 2014, according to CattleFax. The U.S. will also need to import lean beef for its burger grinds. China and other markets will be bidding for those same cuts.
Segment outlooks
Stocker operations, Spearman said, may face challenges in gaining access to inventory. “Whether it’s winter grazing or summer grass grazing, access to that cattle inventory at a reasonable price will be most difficult challenge for two years.”
Trying to lock in profits during spring at prices of $215 to $225 for a 550-pound calf will be challenging amid tight supply, “especially when you look at feedyards having cost of gains that are more competitive with those grass cost of gains.
“We’re obviously going to utilize the calf crop much sooner. That’s why we’re placing a lot more calves on feed in (late fall) because the cheaper costs of gains are not forcing us to put that weight on somewhere else.”
Spearman said the next three to four years look “to be very good if drought conditions subside,” for the cow-calf producers. Feed is replenished and high-return producers who manage their costs closely should see profits.
“More important is that we pay attention. If you’re stocker or feeder, you’re watching daily to buy or sell on margin. But if you’re a cow-calf guy, you need to pay attention more because things can change.” 
PHOTO
Chad Spearman, analyst for CattleFax, speaks to producers the Range Beef Cow Symposium in Rapid City, South Dakota. Photo by David Cooper.
- From David Cooper news release
