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The
nation’s cowherd isn’t growing, and it might not for a while.
So much for
expansion.
At a time in the cattle cycle when history says more heifers and
cows will be retained because of profitability, as many are
going to town as before.
Though the total
beef cattle inventory was technically higher (0.3%) January 1 of
this year than a year earlier the increase came from the dairy
side. USDA reported that beef cow numbers had declined 0.3%
(100,000 head) in 2006 to approximately 32.9 million head,
though the calf crop was virtually unchanged at about 37.6
million head (beef and dairy calves). All told, 21 states
reported fewer beef cows than the previous year.
Through May of this
year, beef cow slaughter was about 22% higher than a year ago,
and 16% higher than the five-year-average, according to the
Agricultural Marketing Service.
What’s more, according to the Livestock Marketing Information
Center (LMIC), as of January 1 the calculated available feeder
cattle supply outside feedlots was 28.4 million head, up only
0.9% from a year earlier.
“This cattle
inventory cycle essentially began in 2004 with record large
returns to cow-calf operations but was then impacted with a dark
cloud of BSE and international trade disruptions combined with
many cow-calf operations having to deal with the drought of
2006,” explain LMIC analysts. “The cyclical build-up in the
total U.S. cattle and calf inventory has been dampened
significantly compared to historical cycles.”
The weather has
provided the primary dousing up to now, obviously.
First there was the lingering drought through the gut of the
country where most of the nation’s cows are. Although winter
moisture and spring rain have restored some hope in the Central
Plains, even in a perfect world it will take time for pastures
to return to the same capacity levels as before. At the same
time, drought is expanding in the West and Southeast.
Last winter’s blizzards played a roll, too. Though cows were
lost, there were two other primary impacts. First and already
felt in the marketplace was the tonnage removed from the market
due to decreased feedlot performance and cattle mortality in the
effected areas. The other impact, just now to a point where
estimates can be made are the number of calves lost or impaired
in gestation.
Bottom line,
there’s not much reason to expect 2007 will see much herd
expansion because numbers are short and feed is still a limiting
factor.
More than that,
economic incentive to expand is lacking, despite the highest
cattle prices in history and the longest run of cow-calf
profitability on record.
According to the
Food and Agricultural Policy Research Institute (FAPRI) feed
costs (for all livestock) for this year will be up 22.4%
compared to last, while net cow-calf returns are projected to
decline 45.2% to $42.70 per cow. Projected cow-calf returns
plummet from there with FAPRI estimating net cow-calf returns at
$9.40 per cow next year and then -$11.91 to -$47.92 until
breakeven levels return in 2014.
Keep in mind, part
of the FAPRI assumptions include more traditional cyclical
cowherd expansion.
Corn’s Weight
Plenty of the increased feed cost has to do with corn prices
driven by federally subsidized ethanol production.
“The livestock
industry remains the largest consumer of corn by utilizing
almost 58 percent of the total corn used over the past decade.
In the past year alone, cattle feeders have seen a 92 percent
increase in cash corn prices (January-February 2007 price of
$3.68 per bushel, compared to $1.91 per bushel in 2006).” That’s
what Ernie Morales, a Texas cattle feeder and rancher told
members of Congress in March. He was testifying on behalf of the
National Cattlemen’s Beef Association and Texas Cattle Feeders
Association at a hearing about the impact of feed costs on the
livestock industry.
The same goes for
corn derivatives. Last year LMIC analysts say Central Illinois
Dried Distillers Grain prices, on a weekly basis, fluctuated
between the high $60’s and high $90’s per ton until mid-November
when prices moved past $100 per ton. DDG prices began this year
at $122.50 per ton, compared to $82 per ton at the same time in
2006, and 32% higher than the 2001-2005 average. By the end of
April prices averaged $115 per ton, after spiking so far at
$132.50 in February.
With burgeoning
demand increasing, growing supply is the only thing that can
buffer the impact in the short term. The kicker is that demand
is so high, even with the extra acres that have been planted,
and a bin-busting crop, already historically low carry-over
stocks will likely tread water at best.
Farmers intend to
plant the most acres of corn since 1944 when 95.5 million acres
were planted, according to USDA’s Prospective Plantings report
issued April 30. The intended 90.5 million acres is 15% more
than last year. Much of the increased corn planting, as
expected, is coming from soybean ground.
But, estimated
yields are running in the 12.0 billion bushel range, while
estimates of total usage (demand) for this crop are running at
12.0-12.5 billion bushels. So, if it’s a tough growing year,
prices escalate further and have a stronger floor to remain at
those higher prices.
Though Morales
expects U.S. corn producers will meet rapidly expanding corn
demand, he told congressmen, “Until the appropriate acreage and
yield adjustments can be made during this transition, USDA’s
current projection of a 50 percent year-to-year increase in
ethanol-based corn demand from 2.15 to 3.2 billion bushels will
be felt squarely in the wallets of every feeder and cow-calf
producer in this country.”
Even with excess
cattle feeding and packing capacity chasing a relatively tight
supply of cattle, further cow liquidation based on economics is
not out of the question. |
