“We believe fed-cattle prices will go to all-time record high levels in 2004,” says Bill Helming of Bill Helming Consulting Services, Olathe, KS.
Such a bullish prediction takes on added meaning when you understand that over the years Helming has often been a bear compared to prevailing market analysis. But he usually winds up closer to the money than the more optimistic. For example, he's one of the few who defied common wisdom 18 months ago when plenty of us thought the numbers worm had finally turned, only to be steamrolled by tonnage.
“We expect average annual fed-cattle prices to be within the $77-$79/cwt. range in 2004, or at least $3-$4/cwt. higher on average than average annual fed-cattle prices in 2003 (which he predicts will end up at least $7.55/cwt. higher on average than 2002),” Helming says. “We believe fed-cattle prices can and likely will reach $85-$90/cwt. on the high end of the range in 2004.” He expects the highs to come in the February-May window, and the lows ($74-$77/cwt.) in the July-September time frame.
Feeders, Calves Look Good
Similar heady predictions apply to feeder cattle and calves, too. “Replacement-cattle prices are now very strong and are likely going to remain very high and strong for the balance of 2003, and through 2004 and 2005,” says Helming.
Calculating with a finer point, Helming predicts 700- to 800-lb. steers will average $91-$93/cwt. in 2004. He pegs 500- to 600-lb. steers at $101-$103/cwt. on average next year, which puts them at least a smooth $8/cwt. over where he forecasts the same weight cattle will average this year. Price predictions on both are basis Oklahoma City.
In other words, after one of the longest, deepest economic blood baths in cattle feeding history, the numbers are finally catching up with the optimism.
Specifically, Helming and his crew chalk up the historic opportunity to good old-fashioned fundamentals and a rarely seen sight on the intersection between total meat supplies and demand.
As for fundamentals, Helming points out, “The supply of feeder cattle, stocker cattle and calves has obviously been reduced as a result of eight full years of beef and dairy cattle liquidation, resulting from low cattle prices and drought-afflicted grass, pasture and range conditions in many key beef cattle production areas.” He notes the same holds true for Canada, but to a greater degree, and that's before considering that country's bovine spongiform encephalopathy (BSE) debacle.
Total Meat To Fall
Beef isn't the only meat source entering a time of tight supplies. Helming expects total meat production in 2004 to be down close to 1.1% compared to 2003. He predicts total red meat supplies to be down 1.7% (2.2% for beef and 1% for pork) this year, compared to 2002, with the expectation poultry production will remain unchanged.
“This is highly significant. The last time we saw total meat production decline from one year to the next was in 1982 (down 2.2% compared to 1981),” says Helming. “Total meat supplies on a combined basis are very likely going to be tight in 2004 and 2005.”
Now, combine these contracted total meat supplies and the tight beef supply with the increasing demand seen for beef, starting in about 1999 — due in large part to increased eating consistency, new product development and a growing population — and you've got the makings for profitable times in the cattle business.
In fact, if history serves as a useful barometer, and if feeder calf and cattle prices reach the lofty averages predicted by Helming, the money will be too tempting for many cow-calf producers to consider retained ownership beyond weaning. Ironically, though, this will come at a time when the opportunity to retain ownership, both in terms of potential profit and in terms of credit access, will likely run in producers' favor. That's especially true when you consider the cyclical opportunity, while remembering the predictable seasonal dynamics.
For example, the same producer who would have made a profit in only nine out of 21 years selling spring-born, 525-lb. heifer calves at weaning, could have made more money with them 95% of the time by simply retaining ownership in them and taking them directly to the feedlot. Even with the historic bloodletting in the feedlots, this strategy has yielded an average $86.26 advantage during that time, compared to selling the same calves at weaning time. That's according to the “Retained Ownership Analysis,” published by Cattle-Fax. It's a case study evaluating retained ownership strategies from 1980 to 2000.
All told, Helming has never been as excited about the economic prospects of the cattle business.
“Based on 38 years as an agribusiness and beef industry consultant and economist, I am significantly more positive today about the overall supply, demand and price dynamics outlook for the beef cattle production and cattle feeding industries than I have ever been before,” says Helming.
“Of the overall beef supply and demand dynamics, I feel particularly positive about the improvements in consumer beef demand. The demand curve has shifted to the right for beef from 1999 to 2003. This represents a sea change,” he says.
This improvement in demand, he says, is largely the result of:
a growing number of consumers eating somewhat more protein and fewer carbohydrates (sugar);
improved beef product quality at both the restaurant and food store levels;
and relatively strong overall consumer incomes.
You can't bank optimism, but that is a bear talking.