Moods were high at this year’s meeting of the National Cattlemen’s Beef Association in Nashville, Tenn. Record prices marked a golden moment for producers. The good times seemed overdue in the wake of drought, record-high feed costs, floods and snowstorms.
Setting the stage for a good week were feeder prices, which topped $142 per hundredweight (5-area average) prior to the start of the meeting. That’s more than $18 per cwt above year-ago figures.
Looking for guidance on where the 2014 market might go, producers crowded into a standing-room-only presentation from CattleFax analysts who laid out a very nice scenario for continued profits and expansion. Randy Blach, chief executive officer of CattleFax, said they expect a new range for feeder cattle prices between $125/cwt and $155/cwt (2014-2017).
A reduced global beef supply is meeting with more demand for protein, as countries like China see incomes improve. Brett Stuart, global market specialist, said in six years the Chinese middle class of 300 million is expected to grow to 640 million. Already China, when grouped with Hong Kong, is the world’s largest beef importer.
Stuart said they are closely watching movement that might indicate when the country will begin to accept U.S. beef. Currently, Australia and New Zealand are the two largest beef exporters to China.
LOWER FEED PRICES
Along with strong demand and reduced supplies, U.S. beef producers are expected to be encouraged to begin expansion thanks to projections for a strong corn crop and lower feed prices.
Mike Murphy, market analyst and risk management specialist, said through April he expects to see spot corn futures between $4.10 and $4.20 per bushel. From May to December, he sees the trading range dropping, going from $3.60 to $4.10 per bushel. For the year, the average was $4.10 per bushel, a 29% drop.
This season Murphy projected 93.5 million acres of corn will be planted. This is a decrease over 2013, when 95.3 million acres went in. He says producers will add to soybean acreage this year, taking it to 80 million acres, compared to last year’s 76.5 million acres. Wheat will be at 57.1 million acres, a slight increase over 2013’s 56.2 million acres.
Despite fewer acres of corn, Murphy projected 13.5 billion to 14 billion bushels would be produced, assuming what he calls “excellent” growing conditions. He added that hay prices, relative to corn, might be higher, but in general it will be less expensive to feed cattle this year.
“Taken together, these lower feed prices are going to support stabilizing the herd in 2014, and expansion in 2015,” said Murphy.
LIQUIDATION AND EXPANSION
Cow slaughter numbers will continue to drop, down 560,000 head in 2014; down 500,000 head in 2015. This is according to Kevin Good, senior analyst and fed cattle market specialist, who discussed supply and demand projections for beef.
“This is what it will take to move the industry from liquidation to expansion,” he said. He added that the 35.2% heifer slaughter rate last year was the lowest in a decade. He said that will continue to drop and estimated there will be 250,000 more heifers by 2015 in U.S. herds.
“All of our data indicate this thing is turning around,” he said. Between 2010 and 2014, there will be a 7% decline in U.S. beef cow numbers. This year, that continues slightly with a 1% drop in beef cow inventory (250,000 head). But next year, Good said, the industry should see a 1% increase in cow numbers (200,000 head).
“As expansion sets in, we will see a 600,000-head to 700,000-head drop in steer and heifer slaughter,” he said, adding that this year he expects to see the number of head on feed down 600,000. He said the packing industry is still over capacity, and these numbers would likely lead to more closed packing plants this year or next.
Good added tighter beef supplies in the U.S. (per capita supply will go to 54 pounds in 2014, from 56.4 pounds in 2013) will make the industry vulnerable to market share competition from poultry and pork.
For cattlemen, he projected bred heifer values would continue to climb, by 25% this year. Some regions could see higher, or lower, prices depending on grazing conditions. Yearling feeders would be priced in the upper $160s/cwt, a 13%-14% increase over 2013. Five-weight calves would average around $193/cwt, and utility cows in the low $90s/cwt.
Grazing conditions will play a big role in how fast the national herd is rebuilt, according to Bob McCan, incoming NCBA president.
The Victoria, Texas, cattleman has cut his cow and heifer herd numbers from a high of 5,000 head a decade ago to around 3,500 today. “Like all the cattlemen in our area, we’re starting to rebuild, but we need a little help from Mother Nature because we’re still very dry,” he said of the Gulf Coast part of the state. He agrees that it will take the next two years to stabilize and begin rebuilding cow herd numbers.
“The difference is, compared to previous rebuilding cycles, is we now have the DNA selection tools and other technologies to do a better, faster job of selecting the right females to add.”