Cow-calf producers are in the driver's seat
By Doug Rich
"A lot of us grew up in a time when the U.S. was the dominant marketplace in the world," Randy Blach, CEO at CattleFax, told cattlemen at the Cattle Industry Convention in Nashville. "We have seen that change over the last few years when you look at GDP growth."
GDP growth in China over the last five years was up 36 percent and India up 9 percent over that same time period and the U.S. only up 7 percent. Blach said this is not a short-term phenomenon but a major shift that affects the beef industry.
"If you think it will be less of a global market over the next 5, 10, 15, or 20 years you are seriously mistaken," Blach said. "The data we present today does not look anything like it did 10 years ago at the Outlook Seminar at this convention and in five years it won't look anything like what you have seen today."
Export markets will continue to be vitally important beef producers in the U.S. Blach noted that by 2050 there will be a project 9 billion people in the world and the U.S. will be a smaller percentage of that number then we are today. Nearly 18 percent of all the protein produced in the U.S. now is exported.
When will the cattle herd begin to expand? This was the question that many cattlemen at the convention wanted Blach to answer. Blach said he did think there was any doubt that the U.S. would expand its herd over the next several years if there were enough moisture in regions of the country. The market is finally sending a strong enough signal to get the expansion started.
"Don't second guess the market, the market works," Blach said.
Kevin Good, CattleFax analyst, said the herd size should stabilize and begin to rebuild over the next two years.
Due to drought in the southern Plains cow numbers were down 16 percent in Texas, 14 percent in Oklahoma, and an 11 percent drop in New Mexico. Mexico continues to reduce its cowherd due to the lingering drought conditions. At the same time there was a slight expansion of cow numbers in the northern Plains. Expansion has begun in areas with better feed resources like the northern Plains and Canada.
CattleFax expects fed cattle prices to average $122 per hundredweight this year and slaughter cows should average near $80 per cwt. Feeder cattle will average around $150 per cwt. The average price for a 550-pound steer calf is forecast to be near $175 per cwt.
Good said margins for the feeder sector could be very low to negative this year. The stocker-backgrounder sector has been the most profitable over the last 10 years but higher calf prices and higher lease rates for grass will squeeze their margins down in 2012.
"Cow-calf producers will be in the drivers seat for several years to come," Good said.
The CattleFax Outlook Seminar began with a weather forecast from Art Douglas, who has been providing that report to cattlemen at the Cattle Industry Convention for 35 years.
The forecast includes a change away from La Nina to El Nino. Douglas said warming ocean temperature off the coast of Peru and Ecuador signal a change to El Nino later this spring. Although there were good rains in western Australia it has turn dried in the northern region of country and the forecast is for wet weather in Argentina, which has been experiencing a drought. Douglas said both of these events hint at a shift away from La Nina and toward El Nino.
"Numerical models from the U.S. and European Union indicate warming ocean temperatures," Douglas said.
The developing El Nina will be the most important weather feature as we head into spring and summer months. The changing weather pattern could result in cool wet conditions this spring. This will be followed by a cool, wet summer for much of the U.S. Douglas said this summer could be very much like the summers of 2004 and 2009. Both of those summers were quite cool and there was some delayed planting and a slow maturing corn crop.
An El Nino will not necessarily end the drought in Texas and New Mexico until fall. El Nino weather patterns are generally associated with improved fall and winter rainfall across the Southwest and South.
Blach told the cattlemen that higher calf prices and higher feed bills means higher risk. To manage that risk cattlemen need to be prepared to do things differently.
For more coverage from High Plains Journal/Midwest Ag Journal from the Cattle Industry Convention visit http://ncba.wordpress.com/
Doug Rich can be reached by phone at 785-749-5304 or by email at email@example.com.