Though there are logical reasons to suggest the nation’s economy is on the cusp of recovery (see "End of the Great Recession? Maybe"), margins will continue to be challenging for stocker operators, and for cattlemen and livestock producers in general.
“The recent recession has wounded the livestock industry,” say Federal Reserve Board (FRB) economists Brian Briggeman and Jason Henderson. “Since 2007, falling demand and rising feed costs have battered U.S. producers of cattle, hogs, poultry and dairy products, forcing them to trim their herds. This traditional supply adjustment should help rebalance supply and demand, thus boosting profit margins and staving off larger losses over the next year.”
In their recent article, "The Slow Road Back for the U.S. Livestock Industry (www.kansascityfed.org/), Briggeman and Henderson say returning to profitability rests upon the renewal of consumer demand for animal protein.
“It will take months of profitability to stop the structural adjustments to feedlot capacity that are underway but it would only take a bit more help in terms of lower feeding costs or higher fed cattle prices to begin the process,” says Derrell Peel, Oklahoma State University Extension livestock marketing specialist. “There may begin to be some opportunities to lock in profitable margins in cattle feeding and that may offer more opportunities for cow-calf and stocker producers to have retained ownership as a viable alternative. Macroeconomic recovery that translates into stronger beef demand is possible in the next few months and will certainly help the process.”
Based on Kansas State University’s Focus on Feedlots survey, market analysts with the Livestock Marketing Information Center explain, “For the month of July, the average cost of gain (COG) for steer closeouts was $76.75/cwt. vs. $87.28/cwt. a year ago, the lowest posted since February 2008. The projected COG for steers placed on feed in August was $73.75/cwt. Since August, COG has continued to decline.”
Peel adds: “Markets do not sit still and inevitably markets will continue to adjust and move towards relative input and output prices that allow profitability and more stability in the absence of additional shocks. Opportunities will appear and disappear along the way and producers should look for chances to take advantage of those opportunities. History is less of a guide in dynamic times, and rules of thumb based on history are downright dangerous. Nevertheless, there are opportunities.”