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As we start a new year, many of us often like to take a new
outlook on the twelve months that lie ahead. What will 2008
bring for the beef industry? How should you be positioning your
business? Here, we take a glimpse at what industry analysts are
saying about agriculture:
Well-known Cattle Fax executive vice president Randy Blach is
keeping his eye on the big picture. He says, “Globalization is
here, and we [the U.S. cattle industry] need to figure out how
to participate.”
If all segments of America’s beef sector can embrace the
globalization of the marketplace, Blach says there would be more
opportunity in the cattle industry than ever before.
“This is a tremendous opportunity for beef producers, but we
have to have access to these international markets. It is a much
different ballgame with globalization and higher corn prices,
and not the same business that we grew up with.”
Blach notes that beef production is growing worldwide, but
Brazil, China, Argentina and Uruguay are seeing the lion’s share
of the growth. That growth needs to warrant the U.S. beef
industry’s attention.
“We need to understand what it takes to be part of that market
and to be a viable industry in the future. We need to export
more of our beef production,” Blach says. To do so, he says
America’s cattle industry must get back the markets we lost in
2003 (Korea and Japan) and add China.
Blach believes those export markets would add $85 per head to
what American producers receive today.
At present, Blach says the weak U.S. dollar should make American
beef more attractive overseas. “As the dollar weakens…there is
more international buying power from places with more wealth
like in China and India,” he explains.
Ethanol’s Impact
In addition to globalization, Blach says another trend he is
observing is the fact that herd expansion is not occurring
within the U.S. – despite profitability within the cow-calf
sector for the last decade.
He attributes this to record-high feed prices. “Cow-calf costs
are up 20% over the last three years. It is going to cost more
to produce calves every year, and I see no change in that on the
horizon.
Much of that increased cost can be traced to high corn prices
due to competition for corn from the ethanol industry. Of that,
Andy Gottschalk, a commodity broker and owner of hedgersedge.com,
says “In its current state ethanol is not a friend to the cattle
industry.”
He says, “The sector of our industry most susceptible to the
adverse impact of a sharp increase in corn prices is the
cow-calf sector. Higher corn or feedgrain prices will ultimately
limit the price the fed sector will pay for calves and feeders.
Each 10¢ advance in corn prices will reduce the value of a calf
or feeder $4-5/head.”
While the good news side of the ethanol industry is the large
amounts of distiller’s grains that are available for cattle
rations, Gottschalk and Blach say cattlemen will still need to
be watchful of prices for corn and other feedstuffs and
calculate strategies for surviving those increased costs. The
ethanol and biodiesel industries are here to stay as new bills
in Congress are placing more emphasis on use of renewable fuels.
The prediction is to increase to 36 billion gals./year in 2022.
COOL Future
Also on the horizon for the beef industry for 2008 is the
continued effort toward country-of-origin labeling. Ag economist
Brad Lubben says, “COOL is coming whether this Farm Bill is
passed or not. Mandatory COOL is on the way Sept. 1, 2008.”
Lubben, who is with the University of Nebraska-Lincoln, notes
that there are revisions within current COOL language that will
make it different than earlier proposals. Namely, there is a
revision in how a product may be labeled; now allowing for a
pure USA product, a label indicating a mix of product from USA
and foreign countries, and a product purely of foreign origin.
Also, he notes that the proposed COOL legislation includes a
grandfather clause that would allow everything in the U.S. on
Jan. 1, 2008 to be grandfathered in as U.S. origin. “That is
significant as it eases some of the burden for producing back
records,” says Lubben. He indicates that this clause would also
allow for USDA to write rules this spring that could then allow
for a September implementation.
On the subject of cost, Lubben admits that is still a widely
debated range, with estimates to implement COOL from $150
million to $6 billion.
“It’s still a debatable question as to what this will cost and
what consumers are willing to pay. And we really won’t know
until we test this and have implemented COOL for a couple
years,” he surmises.
Cost aside, Lubben indicates that COOL is just the beginning of
traceability and process verified systems that some retailers
are beginning to demand. “In the end, traceability and PVP will
trump COOL. The demand for those systems is growing,” he
concludes.
Editor’s Note: This article is based on comments made by
speakers at the Range Beef Cow Symposium held in Fort Collins,
CO, Dec. 11-13. To review more comments by speakers at the event
visit
www.rangebeefcow.com.
Price Predicitions
What can be expected regarding the cattle price cycle?
Cattle-Fax’s Randy Blach reports that growth within the U.S.
cowherd has been limited by drought, higher land values, growing
ethanol production, alternative land uses, urban sprawl and
more.
However, Blach acknowledges that even with a stable herd size,
US beef production is rising to meet demand, as we are producing
more beef from fewer cows with carcass weights going up 15-20
pounds.
Looking ahead at the next 12 months, Blach predicts fed prices
may average in the $92-94 range, calves in the $117-120 range,
and feeders at $105-106.
But, he indicates producers in the West and Southeast will have
to be more efficient to stay competitive with the Central U.S. |
