Beef industry may see black ink

Beef industry may see black ink

Beef industry should have more positive year thanks to lower input costs and continued strong demand.

Beef industry may see black ink
RANCHERS' moods are improving with the start of a new year as feed costs remain low and beef prices are robust.

Jim Robb from the Livestock Marketing Information Center (LMIC) told Feedstuffs that 2014 will be unique for the entire agriculture industry mainly because most input costs should be lower, especially for purchased feed. LMIC is estimating costs to be $50 less per cow.

After several stressful years and tough decisions, cow/calf operations should experience a reprieve in 2014, with their estimated cash returns doubling (Figure 1).

Nevertheless, Robb explained that it is important to keep in mind that many ranches have dramatically reduced their herd size as a result of high corn prices and past droughts, meaning the total number of cows is less than normal. So, for 2014, Robb noted that the total cow/calf return will not perfectly mimic his estimate.

Packers and cattle feeders will experience the most pressure. Pushing current record beef prices into the marketplace will be challenging for those sectors.

Based on models that do not include the use of beta-agonists, LMIC estimated that cattle feeder returns should improve from 2013 but won't return to the positive level of 2010 (Figure 2). Potentially, if feed costs continue to decline, the best returns could come in late 2014, according to Robb.

Consumer demand for beef in 2013 was strong, and that is a good thing for the cattle markets. However, as retail prices reach ever-higher levels, some pushback is expected. Still, Robb projects the strong demand for beef to continue in 2014 as restaurant sales remain high.

"Restaurant sales are one of those keys to the beef market, more important than any other livestock species," he explained. "The restaurant component, especially in some segments, is a little more robust than in recent years, and that is important to the beef complex."

As demonstrated by the $1.06 drop in Choice cutout prices last Thursday, the record-high wholesale price that held through most of January is not sustainable.

The beef export market finished 2013 better than expected largely due to Japan's change in cattle age requirement to match international standards. More important, beef demand rose as Japan's economy improved, while pork demand actually softened.

Robb said the beef export market in 2014 should continue its strong trend. With high beef prices, the total value should repeat record highs at the end of this year, although actual volume may decrease marginally. Overall, the demand side is slightly positive or neutral for the beef export market.

"The U.S. is setting the standard for world growth now," Robb said. "The U.S. economy will be the driving force for the demand portfolio in 2014. As the U.S. economy grows, so will beef demand."

On the other hand, a record-tight cattle supply is not breaking news and also is reflected in the markets. Since corn prices started to erode after July 4, 2013, fed cattle and yearling prices have been aggressive; however, Robb warned that it will run out of steam at some point.

For the beef market, 2014 should be a promising year on the whole, but uncertainties are always around the corner.

The increase in feeder and fed cattle prices for 2014 has already arrived, with 700 lb. feeders priced at $170 and the fed cattle market in the mid-$140s, Robb said.

In 2013, the average price was $170 for 500-600 lb. steers in the southern Plains, and the last quarter was strong, which is extremely unusual. Robb is forecasting — for the first time ever — prices of more than $2/lb. for steers in the southern Plains in 2014.

Fed cattle prices last year averaged $125.88/cwt., up 2.5% from 2012, and are projected to be in range of $136-139/cwt. for 2014 (Table 1).

The beef industry should be keeping an eye on porcine epidemic diarrhea virus (PEDV) in the hog industry. It is quite possible that a flood of pork will hit the market in 2015 and 2016 as the pork industry gets PEDV under control.

Another important issue to watch is the drought in California and nearby states. At a time when cattle in this region are normally on grass, the drought is forcing ranchers to make tough decisions. Sale barns in California reported a record number of cattle showings last week. This year will be a tough go for that part of the U.S.

The overall inventory in the U.S. Department of Agriculture's National Agricultural Statistics Services "Cattle on Feed" report came in close to prior report estimates (Table 2). Everyone in the industry is completely aware that the cattle supply is limited, and the report reflects that.

Still, the report was overshadowed by market activity at the start of last week, Robb said.

In the livestock and poultry market last week, record-high wholesale prices in the cattle market for the first three weeks of January are expected to weaken demand for beef as retailers and consumers resist high prices.

The rumor on the trade floor is that lower prices for beef cutouts will trigger the cash cattle trade to push away from recent record highs.

Last Thursday, live cattle closed 8 cents lower than the previous week, at $142.15/cwt. Feeder cattle were $1.50 higher than the week before, closing at $171.675/cwt. last Thursday.

It was reported that pork packers slightly increased hog prices, with eastern buyers paying at the top of the base price line at $78.82/cwt. last week to get supplies as cold temperatures and winter storms continued.

Hog supplies remained tight, with USDA testing data the week of Jan. 19 reporting 215 cases of PEDV, a large spike. USDA reported slaughter for the week as of last Thursday at 1.572 million hogs, down 88,000 from a year ago.

In addition, Tyson, in its quarterly report, said it expects to see 3% fewer hogs in the upcoming months. Market analysts are anticipating a move upward in hog prices as a result of low pork production.

In the chicken market, offerings were light to moderate and demand also light. Wholesale broiler and fryer prices were steady overall, but market activity was slow.

Egg market prices were 7-15 cents higher last week, depending on the region. Large-sized eggs were $1.27-1.31/doz. in the Northeast, $1.34-1.37/doz. in the Southeast and $1.23-1.26/doz. in the Midwest.

 

1. Beef production and cattle prices

 

-Beef production (billion lb.)-

 

2011

2012

2013

2014

 

26.195

25.910

25.718

24.087

 

-Cattle prices ($/cwt.)-

 

 

500-600 lb. calves

700-800 lb. yearlings

Fed steers

 

2011

148.37

135.04

114.74

 

2012

168.26

148.81

122.86

 

2013

172.15

150.69

130.00

 

2014

200.00

169.00

136.00

 

Source: Livestock Marketing Information Center.

 

2. Jan. 1 feedlot inventory (million head)

Category

2012

2013

2014

% of prior year

Jan. 1 Inventory

11.861

11.193

10.593

94.6

Dec. marketings

1.745

1.736

99.5

Dec. placements

1.664

1.681

101

Source: National Agricultural Statistics Service.

 

 

Volume:86 Issue:05

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