cowherd grazing

Conditions Offer Some Hope For Costs In 2013

The only thing in our business that seems to be maintaining pace with record cattle prices [3] is the price of inputs [4] – oil and corn, of course, being the big areas of focus because they have such a dramatic impact on profitability. Nobody should take the above headline to imply that I expect prices are going to fall dramatically or that they will ever return to previous levels. Still, prognosticators are raising the prospect for short-term relief on both fronts.

With a return to trend-line yields, it’s feasible to see a 14-billion-bu. corn crop; and with limited growth in demand for that crop, the experts are talking about a possibility of $5.50/bu. corn [5]. Yes, another drought in 2013 could mean $8.50/bu. corn as well. However, with a normal production year, corn prices are actually projected to decline fairly significantly.

In my reading this week, I ran across four different articles discussing the possibility of a U.S. oil glut; with a global economy that continues to be anemic at best, these prognosticators are talking about the possibility of $50/barrel oil. And admittedly, an Israel/Iran conflict that sets off a broader conflict in the Middle East could shoot the price of oil north of $100/barrel overnight. Such is the world we live in today.

There remain a lot of questions regarding 2013, but none are more important to producers than what the weather [6] will bring in the next growing season. A change in weather conditions that alleviates the widespread drought of 2012 would be a huge positive for our industry. Higher cattle prices and lower input costs would be a very welcome development for the coming year. Hope for the best, but plan for the worst.