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Smaller inventories continue to plague beef industry

By Jennifer Carrico

Journal stock photo by Jennifer M. Latzke.

A challenge for many cattle producers is dealing with smaller inventories and excess capacity, according to Mike Sands, vice president of Informa Economics.

Sands discussed the problem at the Feeding Quality Forum in Grand Island, Neb., recently. "We are going to continue to see a declining beef supply for the next two to three years," he said. "There are larger monthly inventories, but a smaller steer and heifer slaughter numbers."

Many feedlots continue to have empty lots simply because numbers are so low, as well as rising feed costs.

"All these factors lead to more volatility and financial risk for feedlot owners," he added. "What we've seen from feed costs and the Renewable Fuels Standard, it's going to be challenging to have enough feed left for the livestock industry."

Sands expects the smallest inventory in recent years to be seen in 2014, with no cattle inventory increase until at least 2015.

"The drought has expanded the decrease in the cattle inventory. Originally, we thought we would start seeing the increase by late 2013, but now it will be extended at least two years beyond that," he said.

Sands pointed out that nearly 75 percent of the U.S. cowherd is under drought conditions, which has led to many cattle producers culling problem cows and there's no real incentive for keeping back replacement heifers.

With the decrease in the cowherd there has also been a drop in feeder cattle numbers of 4 million head over the past four years. He expects these numbers to continue to decrease over the next two years.

With the increase in the ethanol industry, less corn has been available for livestock feed and this year's drought will cause more supply issues.

"More than 4.6 billion bushels of corn will still go to the ethanol industry to meet octane levels, even with the RFS waiver," he said. "The livestock industry is the natural shock absorber when corn prices are high."

The changes in the prices of corn had led to fewer smaller producers feeding cattle and nearly 85 percent of the feeding operations are larger ones.

"The smaller farmer/feeders have disappeared and the larger ones have taken over," he said.

Supplies continue to decrease, which leads to an increase in prices for both feeder cattle and fat cattle.

"Even with higher market prices, price volatility is high and can cause increased financial risks," he said. "We suggest all feedlots manage risk."

Feedlot inventories continue to move north into larger capacity feedlots where feed is available at a lower cost.

"With all the bad news, prices are still moving higher. While that isn't the short-term answer, it will help the industry in the long run," said Sands. "Right now the cow-calf producer is in the driver's seat. All segments of the industry will eventually get back into check."

Jennifer Carrico can be reached by phone at 515-833-2120, or by email at jcarrico@hpj.com.

Date: 9-24-2012

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