With the traditional cattle cycle seemingly stuck in neutral and the U.S. cattle inventory at levels not seen in 50 years, the often-asked question is when will expansion of the U.S. cowherd begin?
After all, prices for all classes of cattle are at or near record levels, and U.S. beef exports continue to trend higher, with November exports posting the second-largest monthly volume since 2003. Meanwhile, imports of foreign beef are down, as November imports registered at just 130.8 million lbs. – a 23% reduction from the year before and the lowest monthly volume since December 1993.
But, inputs are up, particularly feed and fuel, while a lethargic U.S. economy still has folks skittish about short-term prospects, and there’s no shortage of anxiety about what government might decide to do next.
So, while some prognosticators say the incentives to rebuild numbers are increasing but not quite at that threshold necessary to jumpstart it, an exclusive survey of BEEF readers finds that about half of respondents aim to expand their operations in the coming year.
In fact, 33.7% of cow-calf respondents to an electronic survey conducted in January indicated they intend to expand their cowherd size by 1-10% in 2011, while 19.1% plan to expand by 11% or more (Figure 1). A total of 41% indicated they intend to remain the same size, with 6.2% remaining the same size but adding or growing other enterprises.
Another 3.1% of respondents indicated they planned to contract by 1-10% in the coming year, while 2.3% expected to contract by 11% or more. A total of .8% planned to exit the industry in 2011, with .6% retiring and .2% not retiring but getting out of the beef/cattle industry completely.
In addition, producers overall are more optimistic about the future, thanks to the 2010 mid-term elections (Figure 2). Viewing the Republican tide at both the state and federal levels as positive for the U.S. beef industry were 60.9% of respondents, while just 6% see those results as negative. Another 20.6% were neutral and 12.5% had no opinion.
The electronic survey was mailed in early January to 20,000 BEEF readers, from which 1,312 usable surveys were returned, for an effective response rate of 6.6%. Readers were surveyed on a number of issues. These included their operational plans for 2011 and the coming three-year period, their opinions on the results of the November 2010 mid-term elections, and their attitudes toward major issues facing the country and the U.S. beef industry. Cross-tabulations were performed by age and geographic location of the respondents.
“The level of optimism expressed by respondents is encouraging and a little surprising, given the negative factors of high input costs, government meddling and others, but high prices can apparently cure a lot of heartburn,” says BEEF Senior Editor Burt Rutherford of the results.
“It’s obvious these plans for expansion among respondents are being driven by the opportunity they see and the pressure to remain competitive. I think the opportunity the producers are seeing is cattle futures trading at $112/cwt. for 2012 delivery,” says Scott Grau, research manager for BEEF.
Grau says the top political concerns among producers are estate taxes and private property rights. “Regionally, the North Central states were less positive about the election results than the rest of the regions; it could be the fact that the majority of operations in that locale raise grain, which would be greatly affected by any change in biofuels policy,” he says.
How they’ll grow
Of those cow-calf respondents planning to expand their operation in the coming year, 62% say it’s because they see opportunity in the future, while 38% say they need to expand to remain competitive.
Of those respondents indicating they planned to expand their cowherds in 2011, 75.8% say they would do so by holding back heifers, 46.7% plan to buy replacements and 4.5% will lease cattle or run cattle on shares (Figure 3, p. 16).
Overall, the survey respondents’ outlook is even more bullish over the next three years (Figure 4). When asked about their plans for the overall cattle operation over that period of time, 35.5% indicated they will expand by 10% or less, and 26.3% plan to expand by 11% or more; 30.1% plan to remain the same size.
Of those respondents planning to expand their operation over the next three years, 61.1% say they are motivated to do so because of the opportunity they see in the future, while 40.1% say expansion is necessary to remain competitive (Figure 5). Another 16.7% say they will expand in order to add a partner or family member to the operation.
Of respondents planning to expand over the next three years (Figure 6), 74.3% say they plan to expand herd size, while 43.3% aim to rent or lease more land. Those aiming to buy more land constituted 19.2%, while those planning to diversify their operation by adding a stocker/backgrounding component measured 14.2%, those diversifying by adding cattle feeding/finishing component 8.9%, and those diversifying by adding a cow-calf component 4.6%.
Of those respondents planning to reduce the size of their operation over the next three years (Figure 7, p. 17), the two most-cited reasons (34.6%) were high input costs (feed, fuel and labor) and age of the operator. The inability to find good help was mentioned by 7.7% of respondents, while 5.8% cited the uncertain economy. A total of 17.3% cited other unmentioned factors.
Among those operators planning to maintain their current operation size over the next three years (Figure 8), the majority (47.3%) say they plan to do so because their operation size in land and cows is sufficient and they don’t want to hire additional labor.
The greatest percentage (27.7%) of those planning to exit the beef business in the next three years plan to rent the land to a non-family member, while 21.3% will rent the land to a family member (Figure 9). Another 19.1% will keep the land but not raise cattle, and 17% did not own any of the land within their operation. 8.5% plan to sell their land to a non-family member, and 6.4% say they intend to sell their land to a family member.
Of those planning to exit the industry in the next three years, high input costs was the most cited reason (14.9%) among such respondents. Another 12.8% said a family member wanted to take over the operation, while 4.3% cited the poor economy and 2.1% pointed to high land prices.
Among all respondents, the average age of mature cows was 6-8 years (63.7%), while 31.4% were 3-5 years of age, and 4.9% were nine years and older.
With the 112th Congress seated in Washington, D.C., in January, survey subjects were asked to rank 13 issues in importance (Figure 10). The topics of estate tax and private property rights ranked the highest followed by border security/immigration, marketing regulations (GIPSA rule) and energy policy.
See the full report with cross-tabulations at beefmagazine.com.
For a copy of the survey results, click here.