Cattle markets need more rain and more corn
By Doug Rich
"We had record-high calf prices in 2012, but we spent most of it on hay," Randy Blach, CattleFax CEO, said during the CattleFax outlook session at the Cattle Industry Conference in Tampa, Fla.
Depending on the weather, 2013 could be a repeat performance. Blach said the feedlot sector will have negative margins this year, the stocker sector will have narrow but positive margins, and the cow-calf sector will have record-high calf prices this year. All of these projections depend on rain and a corn crop.
"It has to rain and we have to have a corn crop," Blach said.
Chad Spearman, CattleFax analyst, said he expects to a substantial increase in both corn and soybean acres. Acres continue to come out of the Conservation Reserve Program.
"We expect to see producers maximize acreage in 2013," Spearman said.
Spearman said corn acres could increase to around 98 million acres, soybean acres could increase to 79 million acres, and there could be an increase in all wheat acres. However, some regions will see a decrease in corn acres where producers plan to plant winter wheat and then plant double crop soybeans.
Yields could be much higher this year. Last year corn yields dropped to 123 bushels per acre. Spearman said that was the largest deviation from trend lines since 1988. If producers have a trend line yield of 157 bushels per acre, they will have a 14 billion-bushel crop this year. If there are still some weather-related problems this year and the average yield drops to 150 bushels, we could still have a 13.5 billion bushel corn crop in 2013.
"This could be the first time in several years where corn production is larger than total corn usage for the marketing year," Spearman said.
The other big factor in corn demand and usage is ethanol production. Spearman said ethanol production levels dipped substantially last fall after profitability disappeared. Ethanol production continues to run below the two previous marketing years.
The Renewable Fuels Standard mandates the use of ethanol but it does not mandate that we produce that ethanol. Spearman said the U.S. would have to be a net importer of ethanol to meet the RFS mandated usage.
"Production will fall short of the amount needed to meet RFS requirement for the calendar year of 2013," Spearman said.
Corn prices could be substantially lower this year. Spearman said the average price for 2013 could be around $6 per bushel.
If weather cooperates, will this be the year that U.S. producers start to rebuild their herds? The U.S. has gone through liquidation 15 of the last 17 years, but there are some positive signs out there.
Kevin Good, CattleFax analyst, said cow harvest rates were down last year over 275,000 head. Good said you could start to see a changing trend. Cow harvest rates are expected to drop over the next couple of years.
"If we expect to see the beef industry stabilize and then expand, the cow harvest rate has to drop by 1.2 million head over the next couple of years," Good said.
Heifer slaughter has declined the last two years, also. Over the next couple of years there will be fewer heifers going to the feedlots, as more heifers will be held back as replacements. It is not enough for expansion but it is going in the right direction, Good said.
"The economic incentive is there to expand and we do expect to see some of that as soon as Mother Nature cooperates," Good said.
The incentive is a calf price that average $175 for a 550-pound steer. Good said fed cattle could average around $126 with a range of $114 to $138. The market for 750-pound steers could average around $155. Cull cow prices could average $88 per hundredweight. And bred females could bring an average $1,550 per head.
Globally as incomes improve in the emerging nations so will the demand for more protein. Blach said on a global basis the per capita meat consumption has gone from 58 pounds to 75 pounds.
"When we look at all the meat that is traded globally the U.S. has been the biggest contributor to that export picture," Blach said.
Blach said the value of beef and beef by-products along contribute $280 a head to the value of every fed steer and heifer. This figure has increased $100 a head since 2003. Five to 10 years from the U.S. could be exporting 20 percent of its total beef production.
"It is a big deal and it will continue to grow," Blach said.
Blach said producers need to do a better job of managing corn and feeding risk. He pointed out that it takes 63 percent more capital to operate today than it did in 2009 and 112 percent more than it did in 2000. Blach said access to capital and credit for individual and business to operate successfully will be tested.
All of these projections still depend on Mother Nature. Will there be enough moisture to raise a bigger corn crop, and will there be enough moisture for pasture to recover from the drought?
Doug Rich can be reached by phone at 785-749-5304 or by email at email@example.com.