“Despite a very positive outlook from the cow-calf producers’ perspective, it is not clear that larger cattle inventories are in fact economically sustainable from an overall industry profit perspective,” say USDA Economic Research Service (ERS) analysts in last week’s monthly Livestock, Dairy and Poultry Outlook.
Reasons for the ERS assessment include negative margins for cattle feeders and beef packers, as well as potential consumer resistance to higher retail beef prices.
“Retail beef prices are at record levels, but these prices are not sufficient to provide the long-term margins and profits the wholesale and cattle feeding sectors must have in order to sustain an expansion,” ERS analysts say. “There are signs that consumers are beginning to resist the escalating retail prices. It is not clear how much higher beef retail prices can go with pork and poultry so much less expensive. Both cattle feeders and packers have absorbed negative margins for most of 2011 and thus far into 2012.”
Visiting with different folks around the country, many say high prices will in fact stymie expansion in the short term. That may be especially true for anyone contemplating an exit from the cattle business, having an opportunity to sell out along the top of the market.
“Heifers are currently selling at prices less than $10/cwt. below steer prices for similar weights. These price differentials at current price levels will provide significant incentive to producers to sell heifers as feeder cattle rather than retaining them as breeding herd replacements,” ERS analysts say.
Interestingly, another ERS report last week, the annual baseline making 10 year out—in this case to 2021—suggests beef cow numbers will grow 13%, from 30 million head currently to 34 million.