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Reader/Economist Survey Finds Long-Term Hope

While U.S. beef producers and ag economists are generally pessimistic about industry

While U.S. beef producers and ag economists are generally pessimistic about industry and economic factors in 2009, the vast majority believe the following three years will see significant improvement in a number of areas.

For instance, while 47% of producer respondents anticipate that the domestic economy will either deteriorate or deteriorate dramatically in 2009 relative to 2008, almost 69% expect to see improvement or dramatic improvement over the next three years. Meanwhile, the biggest share of economists responding (45.5%) believe the domestic economy will remain the same in 2009 relative to 2008, but almost 91% expect it to improve or improve dramatically over the coming three-year period.

That’s according to an email survey of 17,234 BEEF readers (592 useable surveys returned) and 32 agricultural economists (11 useable surveys returned) conducted in early January by BEEF magazine. The two groups were polled on their level of optimism or pessimism for 2009 and the next three-year period. Subjects were polled on prospects for the domestic economy, world economy, export demand for beef, domestic demand for beef, taxes, feed costs, energy costs, credit availability and interest, inflation, calf prices, feeder-cattle prices, fed-cattle prices, cull-cow prices, replacement-heifer prices and land prices. See some results here:

“The results of this exclusive survey indicate that producers are currently shellshocked, but convinced these are passing conditions,” says Scott Grau, BEEF research manager. “Producers are actually quite optimistic about 2010 and beyond with the highest level of optimism existing among respondents in the 12 north-central states. Respondents from the West tended to be the most pessimistic, while Southern producers tended to fall in between the other two regions.”

Of the 592 reader surveys returned (3.4% effective response rate), more than 40% indicated they intend to expand their operation size over the coming three-year period – 28.5% said they intend to expand by 1-10%, while 12.8% will expand by 11% or more.

Meanwhile, 37.8% indicated they intend to retain their current operation size over the coming three-year period, 5.7% said they will contract by 1-10%, and 5.6% will contract by 11% or more. Of those planning to leave the beef/cattle industry, 5.2% plan to retire, and 1.9% indicated they will leave for other than retirement purposes.

Of those planning to expand, 48.6% are doing so to take advantage of future opportunity, 45.7% feel they need to expand to remain competitive and 20.8% are adding a partner or family member to the operation. Of those planning to expand, 78.8% plan to do so by adding numbers: 47.8% will rent/lease more land; 21.2% will buy more land; and roughly 8% each plan to diversify by adding stocker/backgrounding, cattle feeding or a cow-calf component.

“Agriculture will withstand the current economic downfall better than other industry sectors,” said one respondent.

“Feed costs will be higher since high-inputs (mainly fertilizer) will reduce grain yields; therefore, tightening the grain supply,” said another.

Of respondents planning to reduce operation size, 61.2% plan to do so because of high input costs (feed, fuel and labor), while 40.3% look to do so because of the uncertain economy; 20.9% cite the inability to find good help as the reason for their downsizing.

Of operators ceasing operation, 38.1% plan to keep the land but not raise cattle, 26.2% will rent the land to a family member and 19% will rent to a non-family member. Roughly 12% look to sell their land.

“With our economy dependent on consumer spending, the downward spiral is going to be extremely hard to break,” said one respondent.

Economists weigh in. Meanwhile, the 11 economists responding to the survey expect conditions in all categories to either remain the same or deteriorate in 2009, but the overall three-year period is a time of growth and opportunity. 81.8% expect to see improvement in the domestic economy and export demand for beef over the next three years, as well as an increase in calf and fed-cattle prices. 63.6% expect improvement in the world economy and replacement heifer and boxed-beef prices.

54.5% of responding economists see an increase in land prices in the coming three-year period, but 63.6% see either an increase or dramatic increase coming in inflation.

45.5% anticipate that feed costs will remain the same; 36.4% envision an increase. But 63.6% see either an increase or dramatic increase coming in energy costs. An equal share (45.5%) anticipate that domestic beef demand for beef will remain the same or increase. 54.5% expect to see cull-cow prices increase in the next three-year period, the same percentage that expects taxes, inflation and energy costs to increase.

“By 2010, prices should improve nicely with fewer numbers and increasing fed-cattle prices,” said one economist. “American producers are very good at one thing – producing. And they will produce more feed if prices hold,” said another. Regarding inflation, “A $2-trillion deficit makes this a certainty,” added another.