It seemed like every email I opened this week was from an economist. While there seems to be some disagreement over whether this is the worst drought in 50 or 80 years, everyone agrees it’s dry enough that liquidation is continuing.
Last month, retail beef prices hit a record-high, and are expected to increase sharply in the short term, raising serious questions about the long-term prospects for beef production. At the same time, feedyards are seeing some closeouts that are as much as $300 in the red. While corn has surged by over 60% since June 15, thus reducing the value of feeders and calves, the decline in calf prices isn’t expected to offset the increase in feed costs.
Industry Related Resource: Drought Management
We’re just entering the point where most people are running out of grass. Unlike in the past where producers had to make the decision to feed through the drought or sell cows, there’s very little to the decision process this year. In the most drought-affected areas, feed prices will force producers to embrace the old adage that you can’t feed your way through a drought.
Beef output is expected to drop by 3.9% in 2013, according to USDA estimates. Meanwhile, beef prices are projected to rise by as much as 5%, outpacing the price growth in any other food group. The corn harvest is expected to decline by 13%, likely driving record-high prices even higher, and the increases in hay price look like they might exceed those of corn.
Closer Look: Tips On Surviving High Feed Costs
We slaughtered about 3.1 million cows so far in 2012; that’s 300,000 head more than the 10-year average. What makes that number significant is that liquidation didn’t really begin until about the middle of June.
Meanwhile, exports are declining rapidly as U.S. prices, combined with the strength of the U.S. dollar, have priced U.S. product out of the global market.
All these historic numbers are combining to create historic times. Of course, the future will bring record prices and, if Mother Nature cooperates, record profits. The trick is that one has to survive the current challenge to get to that point.
Conversely, the decline in numbers also presents some long-term challenges. Per-capita beef consumption is expected to drop to unprecedented levels, and the industry is expected to lose key infrastructure. Once you lose market share, it is difficult to regain it.