“Net returns have been pressured
again in 2009, as input costs remain rather high compared to
historical norms while calf prices have struggled,” say analysts
with the Livestock Marketing Information Center (LMIC). “Calf
prices are forecast to be slightly higher in the fourth quarter
of this year than in 2008, however for the year, calf prices
will still be the lowest since 2003.”
LMIC analysts expect cow-calf returns for this year to average
-$20 per cow. It would be the second consecutive year of
negative returns, the first consesuctive annual losses since
1998. Again, that’s on average.
In the 36 years the LMIC has
estimated cow-calf returns (including 2009); 15 years have
posted negative cow-calf returns; nine of those years posted
losses greater than $50 per cow.
“…In the last month, prices for 5
and 6 weight calves have dropped about $10/cwt., or $50-60 per
head. If you compare prices from July-August to now, the price
decline has been about $20/cwt., over $100 per head. That price
decline is substantially more than is typical based on historic
seasonal patterns. Because of the large fall calf runs, some
price weakness is to be expected, but this is more than that…”
explained Dillon Feuz, agricultural economist at Utah State
University in a latter October issue of In the Cattle Markets.
Feuz said one factor was this year’s
later corn harvest which increased corn prices, subsequently
pressuring cattle prices.
“…The other on-going and worsening situation is there continues
to be no money in feeding cattle…I really thought, and I am sure
feedlots thought, that they had bought feeder cattle cheap
enough to be making money at this point in time. But the price
of fed cattle has also declined from expectations. Rather than
selling fed cattle in the upper $80’s this fall, as was expected
last spring, we have struggled in the low $80’s per cwt,” Feuz
explained.
Another example of the economic cap in place was seen with the
lack of market bounce though the middle of November for calves
destined for winter wheat pasture which was shaping up to be the
most bullish in years. Cool, wet weather delayed it, though.
Likewise, atypically late corn harvest kept calf buyers from the
Northern Plains out of the market longer than normal.
Slogging through Reality
All of this has occurred even as cow numbers continue to
dwindle—smaller herds the last two years and likely again in
2010. “We’re reducing
numbers (cow inventory) as a result of drought over the past two
years, and that could put us in a very profitable situation in
the future. We slaughtered a lot of cows last year and this
year, which has exceeded 2008 in some cases,” explained Mark
Welch, an economist with the Texas AgriLife Extension Service.
Likewise, LMIC analysts explain, “In
2008, drought-motivated beef cow slaughter kept commercial cow
slaughter high relative to January 1 inventories. In 2009,
cost-driven dairy cow slaughter has kept commercial cow
slaughter high. However, the increased commercial dairy cow
slaughter has not offset the decline in commercial beef cow
slaughter, leaving expected total commercial cow slaughter down
by less than 1% for the first 9 months of 2009.” They added that
beef cow slaughter could increase seasonally as cow-calf
producers culled their herds prior to winter supplemental
feeding. According to
Welch, heifer retention rates have also been on the decline,
down 2.2% compared to 2008 and the fewest in over 30 years.
“We’re not going to have as big of a production beef plant
(number of calves produced) in 2010 as we did this year,” he
says. “When the economy increases and supports the demand, in
general I think we can predict prices are going to increase next
year, and especially going into 2011.”
Even though cattle cycles have
become flatter, less reliable—less useful for predicting
price—this kind of liquidation spawned by a lack of
profitability typically sows the seeds for future profitability
and herd expansion. There are too many factors in flux this time
around to say whether or not that will be the case, with any
degree of certainty.
Demand always holds the Trump Card
For one thing, heavier year-to-year carcass weights dilute
the decline in cattle numbers. Earlier this fall there was lots
of market chatter about there being more cattle out there than
previously thought (of course, there always is that kind of gum
flapping). Rather than numbers, it was increased tonnage; the
impact on near-term price is the same.
As supply remains plentiful, demand
continues to shrink. It was declining before the Great
Recession. With the financial meltdown, it has remained stronger
than common sense could hope for, buoyed on average by the Chuck
and Round. Of course, the recession continues to cloud
predictions about chances to increase demand.
There have been some hopeful signs.
Federal Reserve Chairman, Ben Bernanke, even went so far as
saying a few months ago that the recession had ended, at least
on a technical basis. But for every ray of light, there have
been more clouds of uncertainty—increasing unemployment rates,
fears of a double-dip recession and the like.
Analysts with CME Group’s Daily
Livestock Report pointed out in October, “…The more bearish view
of the market points to continued very high unemployment and the
likelihood that unemployment will continue to rise and top 10%
in the coming months (in fact, October unemployment was reported
in November at 10.2%). This will tend to keep foodservice sales
under pressure and there is a sense that the slowdown in
foodservice business has had a disproportionately negative
impact on beef sales. Also negative for end year demand is the
current outbreak of the H1N1 flu and the disruptions it could
cause going into the holiday season…”
Control what you Can
“Profitability is forecast to return in 2010 and 2011,
however until then the economic incentive to turn strongly
positive for cow-calf producers for overall U.S. cowherd growth
will be delayed,” say LMIC analysts.
In the meantime, uncertainty
underscores the value in boosting herd income via management
each producer controls.
Consider calving season.
Kris Ringwall, an extension beef cattle specialist at North
Dakota State University compared two herds that calved in 2008:
Herd A--186 calves during the first
three 21-day calving periods (63 days) period with 74.7% of the
cows calving in the first 21 days.
Herd B--256 calves during this
63-day period, but only 42.5% of the cows calved during the
first 21 days. In herd A,
Ringwall explains calves born during the second 21 days of the
calving season were 42 lbs. lighter than those born during the
first 21 days of the calving cycle. Those born during the third
21 days of the calving season were 86 lbs. lighter than those
born during the first 21 days.
In herd B, Ringwall explains calves
born during the second 21 days of were 41 lbs. lighter than
those born during the first 21 days. Those born during the third
21 days of the calving cycle were 88 lbs. lighter than those
born during the first 21 days.
“Adding this weight loss to the
number of calves in each cycle, herd A gave up 1,680 lbs. on 40
calves born during the second 21 days of the calving season,
while herd B gave up a whooping 4,551 lbs. on the 111 calves
born during the second 21 days,” Ringwall says. “If one looks at
calves born during the third 21 days of the calving season, herd
A gave up 602 lbs. on seven calves and herd B gave up an
additional 3,168 lbs. on 36 calves. Adding up the weight loss,
herd A lost 2,282 lbs. or 1,231 lbs. per hundred calves, while
herd B lost 7,719 lbs. of calf or 3,045 lbs. per hundred cows.
Granted, the younger, lighter calves may bring more dollars per
pound to help offset some of the losses, but they don’t bring
more dollars per head.”
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