Cattle and corn prices in 2013 depend on drought relief
By Doug Rich
It is nearly impossible to attend a beef meeting of any kind these days without talking about the drought. Kevin Good, CattleFax analyst, did not disappoint in his presentation at the annual convention of the Missouri Cattlemen's Association on Dec. 12 in Columbia, Mo.
"Before the severe drought in the northern and central Plains this year there were a lot of people that were ready to expand their herds," Good said.
This drought has been very similar to the droughts experienced in the 1930s, 1950s and 1980s except for the fact that it has been so mobile. Nearly every portion of the country has experienced some form of drought in the last three years.
"Over the last 10 years we have had several years that are drier than normal," Good said. "Our weather guy at CattleFax would suggest that we are in about the 12th year of a long-term drought cycle. About the best producers can expect is that we get back to normal precipitation this year at some point."
For Missouri specifically, Good said the projection is for a warm and dry winter but March, April, and May could be wetter than normal. This drought is still part of a major long-term trend. Missouri is dry but in comparison to some western states it could be worse.
A topic closely related to the drought and its effect on the cattle business is the price of corn. How bad was the 2012 corn crop? Good said it was as bad as any time since the 1930s.
"This year's corn crop was under more stress than any crop in the last 80 years," Good said. "We came into this year with extra acres planted and thought we would have a huge crop. We ended up with less than an 11 billion bushel corn crop."
A big difference between the 2012 corn crop and the one 80 years ago is that cattle feeders had to share it with the ethanol industry. The last couple of years the U.S. has used 5 billion bushels of corn a year to make ethanol. In the 2012 to 2013 crop year Good said that number would decline to around 4.5 billion bushels. A short corn crop plus continued strong demand for beef equals the second smallest stocks to use ratio in 40 years.
"From a price standpoint this is very supportive for continued strong corn values," Good said.
However, in 2013 CattleFax expects corn acreage will be up again, as well as more acres planted to soybean production. As a result corn prices could be softer for the year as a whole in 2013 if there is a normal growing season and some relief from the drought in the second half of 2013. The average corn price next year could be closer to a dollar lower with most of the reduction occurring the last half of the year.
On a global scale there is growing demand for a limited product, which means export markets will continue to be very important to cattlemen in the U.S. Currently the U.S. has 10 percent of the cows and produces 20 percent of the beef in the world, but the U.S. is not the leading exporter of beef.
The top four exporting countries are India, Australia, Brazil, and the U.S. These four countries control 63 percent of the export market for beef. Good said India is not exporting their sacred cows but a Water Buffalo type breed that is used for milk and meat production.
"Some people think it will be 2014 before India is the largest exporter of beef in the world, but it could happen this year," Good said. "Since 2009, 80 percent of the global growth in beef exports has been in India."
At this time the U.S. and India are not competing directly in export markets. India markets most of its beef to Vietnam and Malaysia. But if India displaces product from either Australia or Brazil that puts more product into markets where the U.S. competes with those countries.
"The global economy is slowing and our product is expensive compared to other producers," Good said.
Looking ahead to cattle markets in 2013 Good said there could be record high prices for all classes of cattle. Fed cattle could average around $128 cwt. with a range of $116 to $140 or a 4.5 percent increase over 2012. The yearling market could range from $155 to $160 cwt. Good said the strongest prices will be in the second half of the year. Prices for calves weighing 550 pounds could be near $185.
"It is lining up to be potentially a pretty good run for cow-calf producers over the next two years," Good said.
Doug Rich can be reached by phone at 785-749-5304 or by email at email@example.com.