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Conditions Offer Some Hope For Costs In 2013

cowherd grazing

The only thing in our business that seems to be maintaining pace with record cattle prices is the price of inputs – 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. 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 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.

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