Malatya Haber Stocker sector must adjust to old and new challenges
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Stocker sector must adjust to old and new challenges

By Doug Rich

Even though pastures on a national basis are in better shape right now, forage prices are lower right now and calf prices are higher right now and Glynn Tonsor, agricultural economist at Kansas State University, said herd expansion has not started yet.

Tonsor was a featured speaker at the KSU Beef Stocker Field Day held Sept. 26 in Manhattan, Kan., and gave what he described as a 30,000-foot view of the stocker segment of the beef industry.

“To date I don’t think we have pulled the trigger on expansion,” Tonsor said.

Tonsor said there might be individual producers who have started to hold back heifers but on a national basis expansion has not started. He does not expect to see significant expansion until 2015.

The most recent forecast by the Economic Research Service estimated a cowherd of 32.2 million head by 2018. The Food and Agricultural Policy Research Institute forecast a beef cowherd of 31 million head by 2018. Tonsor said both forecasts put 2015 as the first year of expansion. Currently, there are about 29 million beef cows in the U.S.

“Nobody is saying we are going to have 40 million cows,” Tonsor said. “We don’t need 40 million cows to give us the beef we think the world wants.”

Who will do the expansion? Tonsor said those regions with a cost of production advantage will do most of the expansion when it does start. The southeast region of the U.S. has a disadvantage to the northwest. Tonsor included the High Plains in the northwest region.

“There will always be cows in the southeast but relatively speaking I think there will be more calves coming from the northern and southern plains than from the southeast,” Tonsor said.

The segment of the beef industry under the most pressure currently is the feedlot sector. Closeouts have been at historically high losses although it does look a little better for the end of this year. Tonsor said returns could reach the breakeven level or even post $20 per herd returns September though December. Excess capacity is a concern and it could become worse when cattlemen begin to retain heifers and if mandatory Country of Origin Labeling makes it difficult to source calves from Mexico and Canada.

“There is more concrete bunk space than we need relative to the calf crop,” Tonsor said. “And pretty much all forecasts say we will never have a calf crop big enough to match the existing concrete bunk space so it is a permanent challenge for the industry.”

The magnitude of the Zilmax decision on the feedlot sector is very uncertain. How long Zilmax will be off the market is also uncertain. Tonsor said the one known is that the removal of this technology will mean less meat production. This product has the potential to add 29 pounds to a steer carcass and 23 pounds to a heifer carcass.

Optaflexx is a replacement for Zilmax but studies show that Zilmax typically adds 6 to 8 more pounds per head than Optaflexx.

Tonsor used a tweet from the Center for Food Integrity to show the broader perspective on the Zilmax issue. On Sept. 4 the Center for Food Integrity tweeted that “Science tells us if we can do something. Society tells us if we should do it.”

The general trend based on data from the Livestock Marketing Information Center is that the U.S. will continue to pull down commercial slaughter numbers all the way through 2015. Based on this data Tonsor said the U.S. partially offset this with higher dressed weights.

“Even with higher dressed weights we are expecting pull downs in beef production because we will hold the number of head down,” Tonsor said. “Commercial beef production for the fourth quarter of 2013 is forecast to be down 6.9 percent. Every quarter in 2014 is projected to be down 6 percent.”

Record high beef prices at the retail level are not going away. Tonsor said retail beef prices will keep getting further and further away from pork and poultry prices.

Tonsor said the beef industry is in the midst of multiple changes. Old as well as new issues will guide the profitability and characterize the industry. The stocker segment will have to adjust accordingly.

Tonsor borrowed his prescription for a positive future from agricultural economist Wayne Purcell. Tonsor said for a positive future the beef industry needs to improve efficiency and reduce cost of production; increase quality signaling; invest in new products and market development; have a more open perspective on trade; continue to support the checkoff program; increase pricing of fed cattle by individual carcass and; elect sound industry leadership.

Again quoting Purcell, Tonsor said, overall the key will be to remember that the industry is providing a consumer product and that the only dollars financing the various players along the supply chain are the consumer dollars.

Date: 10/7/2013


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