Southeast cattle producers better strike while the iron’s hot. For the most part, the economic outlook rarely gets as rosy as it promises to be for 2014 and beyond, and cattle producers could see some opportunitites for making real money.
That was the nutshell-message Curt Lacy brought to the 2014 Georgia Ag Forecast series held in January. The annual forecast series is sponsored by the University of Georgia College of Agricultural and Environmental Sciences and the Georgia Farm Bureau. It brings farm specialists and professionals together to share their best educated guesses on what farmers can expect in the coming production season.
The 2014 marketing opportunities for the cow-calf sector, for example, “are going to be about as good as they can be. If you’ve been in the cow-calf business for quite some time and you’re up to full production and you can’t make money this year, it’s a problem for you because it’s probably as good as it’s going to get as far as profitability,” said Lacy, a UGA Cooperative Extension livestock economist.
Cattle producers know that overall cattle supplies are down and the market is tight, but higher feed costs tempered profit margins over the last few years. “But now, not only have supplies tightened, but now we’re talking about $4 and $5 corn (in 2014) as opposed to $7 or $8 corn (in previous years). As a result, feeder calf prices are already at historical levels as we start this year. And my expectation is this will be a very, very good year for our cattle producers unless something major happens … some type of global or economic situation not necessarily related to the supply side of things for our beef cattle. And I think next year (2015) will be good to,” he said.
Stocker business should still see some profit but not as profitable as the cow-calf side of things, he said.
Corn prices vs. feeder cattle
Corn prices and feeder cattle prices have a strong negative correlation, he said.
“Basically, when the price of corn goes up, the price for feeder cattle goes down because the feed yard, which is where most of our cattle wind up, can’t control the end price, and they can’t control the price of corn. Both of those are given to them. But they can control how much they pay the cow-calf producer,” Lacy said.
Typically, a 10-cent change in the price of corn per bushel will change the price of a 500-pound calf in Georgia by about $1 per hundredweight. “So, if the price of corn goes up $1 a bushel, you’ll see feeder cattle prices go down $10 per hundredweight, or 10 cents a pound,” he said.
Cattle prices will be higher, he projects, in 2014. For example, producers in Georgia can expect a 500- to 600-pound steer to run $5 to $10 per hundredweight higher in 2014 than 2013.
U.S. herd size remains low
The U.S. cattle herd is down and as a whole contains about 29 million beef cows, he said. “And that’s the lowest number we’ve had in quite some time. … In the last ten years, we’ve lost more than 3 million beef cows in the United States, and if you look at the states and region where we’ve lost those numbers there are really two things that are going on":
- Drought-related losses: Cattle herd declines in major cattle states like Texas and Oklahoma are directly attributed to multiple years of drought. “Drought’s a pretty easy fix. As soon as we get rain, then that problem is solved, and there will be an increase in the demand for replacement heifers, beef cows. So we can expect to see a herd increase there,” he said.
- Crop-related loses: But in states like Georgia, Missouri and Illinois, or places where row crops compete for available land, the herd decline in those states comes due to relative profitability to crops. When land goes out of pasture production and into crop production, it is difficult to bring those crop acres back into pasture. Fences have to be put back up and pasture established. Crop prices have to either go really low or cattle prices really high to encourage that shift.
“Even though we may see some herd rebuilding here (in Georgia) in the next couple of years, and I think we will, I don’t think we can expect to totally regain the 3 million beef cows just because land has left pasture production and it won’t be back anytime soon,” he said.
He said it will be 2015 or 2016 before any real increase in the size of the U.S. cow herd will be felt enough to shift the market’s current direction.
Disposable meat money
The overall health of the U.S economy directly impacts the livestock side of the road because the products livestock producers provide - meat - doesn’t have as many middlemen to go through as other commodity-related products to get to consumers. So, when disposable income is down, folks don’t buy as much meat.
Pointing to a chart, Lacy emphasized that most people don’t have as much disposable income as they think. In fact, numbers show disposable income in 2013 was pretty much what it was in 2005. So, even though beef, or red meat, supplies are down and will stay down for a few years, “it is hard to push those higher prices on to consumers because they really don’t have the money to spend,” he said.
The U.S. economy grew in 2013 by 1 percent to 1.5 percent. It is expected to go better in 2014, hitting 2-percent growth or optimistically 3 percent.
“As we get this improving economy, hopefully, consumer income will increase. As a result that should improve the demand we have for livestock products as we head into 2014 and 2015,” he said.