The cow-calf sector is gearing up for profits in 2011, with economists predicting high prices as the year progresses. This is great news for anyone in the business, but many know the trend can change in an instant. Donald Guthmiller, South Dakota Extension marketing and farm management educator, weighs in on the cattle and grain market outlook for the upcoming year.
“Currently, we have the lowest cow numbers since 1958. In 2011, many of you are already calving. If you are keeping heifers back this year, how long will it be until they are productive? It’s going to take three or four years before we start to see an expansion in our nation’s cowherd. The million-dollar question is, will the cowherd grow or will it continue to slide?" ask Guthmiller.
According to the Livestock Marketing Information Center (LMIC), the U.S. lost 500,000 cows in 2010. Looking at Jan. 1, 2011 compared to Jan. 1, 2010, beef replacement heifer numbers are down over 5%. Feeder calves were down by 938,000 head in the U.S. in 2010.
With a healthy, growing export market and higher prices, cattlemen should be sitting pretty this fall; however, escalating input costs will have an impact on producer profits.
“To give you an idea for what to expect for feed costs this fall -- there are already offers to pay $5/bu. for new corn crop this fall. We know that when looking at feeding calves this fall, it’s the margin not the price level that’s most important. I predict background and feeding to be profitable in 2011. There will be some great opportunities for producers to graze yearlings, where the cost of gain is cheaper. Corn is still up in the air. Watch the March planting intentions report that comes out for a better idea of what you might be paying," says Guthmiller.
Of course, the beef industry wouldn’t survive without consumers enjoying steak at restaurants or buying beef at the grocery store.
“Cattle prices will continue to depend on beef demand. Prices have been good, but how high can they go before the consumer starts backing away to different protein options?” asks Guthmiller.
Certainly, interpreting market signals isn’t easy, but if producers keep an eye on cattle inventories, corn prices, U.S. and world economies and consumer demand, it will make the hard questions a little bit easier to answer in 2011. How do you interpret the market signals? What steps are you taking to capture these high prices?
For additional reading, here's what CattleFax sees in the near and long-term for the U.S. beef industry.