Speculation about herd expansion seems to fit squarely into two groups currently. At least it does when I’m chatting with myself.
One camp looks at the sky-high cattle prices, along with more realistic feed prices and consumer beef demand that remains strong, at least according to the statistics.
Since 2010, the annual Retail Beef Demand Index (RBDI) for all fresh beef increased, year-to-year, 1.96%, 3.57% and 1.80% (2011, 2012 and 2013, respectively). During the same timeframe, the annual RBDI for Choice beef has increased 1.26%, 1.61% and 2.59%, respectively. The quarterly RBDI for Choice was up, year-to-year, 4.35% and 3.06% in the last two quarters of 2013.
Add in global beef exports amounting to around $300/head of fed slaughter (if you count hide and offal). That’s before China even enters the mix officially. That’s before considering rampant global population growth and increased food demand. Surely, expansion can blast ahead just as long as moisture and credit allow.
Then I look at USDA’s 10-year projections released earlier this year. Those projections estimate a beef cowherd of 33.7 million head in 2013 – 4.7 million head more than we had when 2014 began, and I wonder how anyone could be that optimistic.
So, I take a seat in the other camp.
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Call it risk aversion or an innate and unrecognized superstition loathe to do or say anything that might jinx the current market. Or maybe it just memories about how the government rather than the markets upended everything in the early 1970s.
Prices are historically high, but gross margins remain relatively flat, while financial risk increases. The infrastructure seems to be wobbling on the cusp of enough rationalization to rip leverage from supply – not immediately, but sooner than anyone would like and most likely sooner than expected. The average age of cattle producers continues to increase. It was a whole lot easier for folks with a fulltime job elsewhere to run a few cows – because they wanted to – when cows were worth half as much as they are now. As those folks – many of them Baby Boomers – begin cashing in and cashing out, we wonder how many will or can replace them.
As for domestic consumers, per-capita beef consumption has declined about 40 lbs. over the last four decades. Beef production – beef supplies available for consumption – has remained amazingly static during that time. But, the U.S. population increased by about 45%. U.S. consumers don’t want to eat any more beef than was available to a population that was 45% smaller four decades ago.
The only thing they do want more of is ground beef. Unfortunately, the market and system revolve around production of Choice and higher USDA Quality Grades.
“Under the existing business model, the U.S. cattle industry manages all fed beef as if it were destined for the center of the plate at a white-tablecloth restaurant,” says Rabobank cattle economist Don Close. “The industry is, essentially, producing an extraordinarily high-grade product for consumers who desire to purchase a commodity. More than 60% of U.S. beef consumption is ground product. If the U.S. cattle industry continues to produce ground beef in a structure better suited to high-end cuts, the result will be continued erosion of market share.”
So, we look at the annual U.S. Baseline Briefing Book released by the Food and Agriculture Policy Institute (FAPRI) at the University of Missouri and feel lots more comfortable.
The FAPRI folks see beef cows increasing from 28.9 million head this year (Jan. 1) to 30.9 million head in 2018, and then declining to 30.1 million head by 2023.
Then we find a third camp, perhaps one not even in the middle, just another one, and we ponder more imminent reality.
“Spring has arrived according to the calendar but it isn’t obvious yet in many parts of the country,” says Derrell Peel, Oklahoma State University Extension livestock marketing specialist, in his March 31 weekly market comments. “Cold weather continues to delay grass green-up in many regions in a fashion that is reminiscent of last year. In some parts of the country, it is not only cold but wet. Other parts of the country are cold and dry and getting drier in some cases. Oklahoma captures this contrast well with parts of the state that have received abundant moisture recently, while persistent drought in other areas is moving into the fourth year. Warm weather will produce forage growth in wet areas, but in the dry regions the clock is ticking on spring forage prospects. Moisture is critically needed in drought regions in the next 30-60 days.”
Supposedly, El Niño is on the way.
Art Douglas, CattleFax meteorologist was predicting it in February. The National Oceanic and Atmospheric Administration’s Climate Prediction Center even issued an El Niño Watch March 6, saying there is a 50% chance of El Niño developing during the summer or fall. Other forecasters have joined the parade in recent weeks.
Though it would be welcome in parched areas of the country, unfortunately, it likely won’t arrive soon enough to drench the areas currently most in need of a drink.
Anybody else have these chats with themselves?
The views of Wes Ishmael do not necessarily reflect those of beefmagazine.com or the Penton Farm Progress Group.
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