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For more than 10 years, a group of consultants have provided this year-round review of cattle industry events. This past year has been a particularly challenging one. As usual, individual opinions vary but that helps make it interesting.

December 1, 2011

9 Min Read
What Will The New Year Bring?

For more than 10 years, a group of consultants have provided this year-round review of cattle industry events. This past year has been a particularly challenging one. As usual, individual opinions vary but that helps make it interesting.

Kenneth Eng

The major event in 2011 in the Southern Plains, especially Texas and Oklahoma, was extreme drought and heat. From September 2010 to September 2011, several areas in Texas received less than 2 in. of rain with 100 straight days exceeding 100°F.

The result was massive cow-calf liquidation and cowherd transfers to other locations. Because 23% of U.S. beef cows reside in Texas and Oklahoma, another year of beef cow liquidation is assured, further aggravating the excess feedlot capacity problem. In 2011, the relentless increase in agricultural land prices continued, which improved the landowners’ bottom line but also increased production costs.

John Nielsen-Gammon, Texas state climatologist, says “Another year of drought is highly likely, and 5-10 more years is a strong possibility.” Many ranchers will start 2012 with no hay or pasture reserves. Another drought year would cause additional massive cow liquidation and would be a “game changer” throughout the U.S. – Kenneth Eng resides in San Antonio, TX.

Steve Bachman

Among my 2011 highlights are:

  • Despite record feeder and fed-cattle prices, demand (particularly foreign) remains excellent. The price spread between end and middle meats has narrowed.
    • Packer acceptance of Zilmax™ increased, spurring more feedyard use.
    • The Choice/Select spread remained very narrow, sometimes even inverted, until about the last quarter of the year.
    • There was more consolidation of the pharmaceutical industry and fewer dollars available for public research.
    • Herd liquidation in 2011 forced high summer feedlot placements of lighter-weight cattle.
    • Record-high corn basis.
    • Tremendous volatility in all aspects of the business seems to have been accepted as the “new normal.”

My predictions for 2012 include:

  • Continued drought, or lack thereof, will be the driver for much of what happens in 2012. Another year of drought in Texas will decimate the cow-calf sector.

  • Feeder cattle will be in high demand.

  • Corn basis will remain high.

  • Volatility and capital requirements have increased, but margins have not, which will continue to cause consolidation/contraction.

I hope packers will make the necessary changes to allow heavier carcasses. The most cost-effective way to meet increasing demand is to allow each animal to produce more meat. Feedlots can do this economically if heavyweight discounts are removed. – Steve Bachman resides in Amarillo, TX.

Bill Dickie

The drought-induced loss of cow numbers in the U.S. will impact the cattle-feeding industry for several years. Rebuilding the herd will be difficult, but also presents a huge opportunity for some producers.

For many cattle-feeding operations, 2011 has been profitable despite high ingredient and production costs. Producers also involved in farming operations continue to do especially well.

Most feedlots are in relatively good shape as far as fall placements, though the makeup of those placements is more varied than in recent years. Many feedlots placed lighter cattle this summer and fall and have fewer-than-normal summer and fall grass cattle yearlings. Feeding and pen conditions are excellent in most areas.

In general, cattle performance has been excellent the past several months, though the recent larger price spread between Choice and Select carcasses is a concern.

Optimizing ration prices and maintaining excellent feed conversions are critical for feedlots to stay competitive. Ration prices are roughly $30/ton lower on a dry-matter basis this fall compared to earlier in the summer.

The new year will offer both challenges and volatility. Maintaining cattle numbers could be difficult for some, especially in the year’s second half. Hopefully, world demand for U.S. beef will stay strong and help bolster industry profitability. Adequate rain in the drought areas would be in the best interest of the entire beef industry. – Bill Dickie resides in Lincoln, NE.

Nathan Elam

Southern Plains cattle feeders will remember 2011 for two things:

• Exceptional performance for the cattle that closed out.
• The dry conditions that provided extraordinary performance also caused new headaches.

Persistent drought conditions in the Southern Plains have caused drastic cowherd reductions and increased demand for feed commodities, especially roughage. The battle for feeder cattle has proved interesting; unfortunately, the afterthought of what to feed them has caused serious commodity supply issues. In fact, the phrase “least-cost ration formulation” has seldom crossed my lips in recent months; more commonly, it’s been replaced with “what can you get delivered and are you certain?”

Looking forward, it appears the feeder-cattle supply will be a larger concern. Nonetheless, concerns created by current weather conditions will eventually dissipate; much more concerning is the regulatory climate if we don’t change our political course.

In any mature industry where the learning curve has plateaued, the opportunities for success are limited to those with established business models. Capital requirements and thin margins limit profitability to those who can secure enough financing to deal in volume, or those with the opportunity to grow their own feed.

In either case, continued success will depend on the public policy that dictates production capabilities and ultimately impacts our opportunities for foreign trade. If our government continues to impose ambiguous regulations to force behaviors they deem beneficial for the “greater good,” we will likely diminish our opportunity to be world leaders in food production. – Nathan Elam resides in Hereford, TX.

Jim Simpson

Year 2011 may very well go down as the driest on record for the Southern Plains. Essentially, there’s been no grass growth for the year over most of Texas and Oklahoma, and wheat pasture prospects for this fall and winter aren’t good. Massive cow liquidation continues across the entire region as supplemental feed is very expensive or unavailable. Water resources are also depleted in many areas.

Feedlot occupancy is high given the severe effects of the drought; cattle have been placed earlier and at lighter weights than normal. Feed costs are high and supplies are short for some key ingredients, including ethanol byproducts and all roughages.

With the exception of some irrigated acres, the cotton crop was a disaster resulting in severe shortages of cotton byproducts. Ground cornstalks, wheat straw and other low-quality, shipped-in roughages are finding their way into feedlot diets. There may even be attempts to feed cattle whole-plant cotton from abandoned or disaster fields.

Predictably, feedyard performance has been excellent given the thin condition of most placements. Cattle markets have been sufficient to sustain some level of profitability most of the year although current breakeven projections don’t look favorable. Pray for rain! – Jim Simpson resides in Canyon, TX.

Tom Peters

2011 was a year of records. There was record spring flooding in most of the ethanol belt, and record drought and heat in the South. Likewise, record-high prices for ethanol byproducts and hay have all livestock producers anxious. However, most ethanol-belt feedlots have greatly reduced the inclusion rate of distillers byproducts, due to their high cost and high residual phosphorus.

Record-high farmland prices continue, and high crop prices have allowed or encouraged some ethanol-belt cattle producers to retire. Conversely, many ethanol-belt beef producers built new facilities because they had “profits from corn sales” to spend and needed tax abatements.

Prices for all classes of cattle were record or near record in 2011. Still, the record-low cowherd numbers are troubling. Many believe the U.S. cowherd will never recover due to land prices, environmental aspects, average age of producers, capital involvement and fewer people willing to “work hard enough to be a cow person.”

We had record-low Choice/Select spreads for most of 2011; in October, Wal-Mart, the worlds’ largest retailer, announced its switch from Select to Choice-grade beef. With high feedstuff prices and short cattle supplies, the need to produce more Choice cattle will only add cost and increased grain use, which spells inefficiency.

If the demand for more Choice product continues, it may change implant programs, use of beta-agonists, etc. Feedlots need to actuate more profit/head to sustain the increased capital risk. However, the packer system continues to consolidate and packers are making more “deals” to provide needed cattle with dwindling supply available. Why our industry leaders allow this monopolization to occur is troubling.
– Tom Peters resides in Oregon, IL.

David McClellan

At a recent gathering, a producer told me, “If you’re in the beef business and you’re not confused, you’re just not paying attention.” That pretty well sums up 2011.

Drought, contraction, liquidation, lower placement weights, all in larger-than-life proportions; and, yet, we in the upper Midwest have been profitable in all sectors of the cattle business.

We’ve seen a massive transition in the last five years that goes from yearling steers to yearling heifers to some low-risk calves to “Who bought these?” All this has caused us to reassess our animal husbandry practices, starting/processing/receiving protocols, and most everything else. We’ve discovered that if the need is great enough, you can teach old dogs new tricks.

Commodities continue to trade at never-before-seen levels, so calculating value requires an ever-sharper pencil. Ask twice, calculate three times, and make decisions quickly, or the opportunity will be gone.

Producers willing to receive, start and provide lots of TLC to stressed calves have found a niche that attracts lots of potential clients. Being able to do this will allow some to stay in business for several years to come. Replacement numbers will be short, of questionable health, and at who knows what price, so I guess we’ve mastered the confusion part. That said, I wouldn’t want to be anywhere else.

Cattlemen helped make America great and if left to us it will be greater still in 2012. – David McClellan resides in Fremont, NE.

David Hutcheson

Meat demand in developing countries is growing at a rate nearly three times that of developed countries. The increase is due to their faster-growing wealth. As per-capita wealth increases, more meat is consumed. To meet the demands of the higher-protein diet, more poultry, cattle and swine are fed grains.

In response to the global demand for meat products, demand for cereal grains for feeding livestock will double in developing countries. As these developing countries begin to produce sustainable beef production systems, the challenges will become water, feed sources and cattle.

Water availability, both in quality and volume, will be a major challenge in developing countries as they develop secure, sustainable beef systems. Dairies will play a role, as both milk and meat can be produced. Milk can be produced with limited or no grain, while lean-beef systems can be developed with minimum grain. The feedlot system, however, is three times more land-efficient than grass-fed beef.
Worldwide demand for beef will continue to increase and outstrip supply. Beef can compete in a global market because it can be finished with byproducts and feedstocks, particularly with minimum amounts of grain, or no grain. Meanwhile, chickens and swine require more grain to produce a marketable product.

Livestock production’s future looks bright, but it must continue to improve economic efficiencies. – David Hutcheson resides in Amarillo, TX.

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