by: Stephen B. Blezinger,
It's time to drag out the trusty crystal ball and take a look at what 2017 has in store for the beef cattle industry. For this to make sense we need to consider where we came from and how we got to where we are.
The last couple of years have been a roller coaster ride with cattle markets flipping from historic highs to depressing lows. In 2014 we saw an extremely short supplied market that brought phenomenally high prices in the fall that had every cowman grinning from ear to ear. Unfortunately these are but a memory. Just two years later, in the fall of 2016 ranchers saw loads of cattle shipped to market that brought 10s of thousands of dollars less than the same period in 2014.
We know the high prices enjoyed were a result of years of drought in predominant cattle-producing states (Texas, Oklahoma, Kansas, etc.) where liquidations of herds or herd down-sizing became the norm with the extreme lack of forage and the high prices commanded by the forage market due to demand.
Beef supplies were short yet demand was steady. This resulted in an increase in prices in the meat case that transferred to the cattle producer (not always the case). Interestingly, as beef prices rose in the grocery store and in the restaurants we did not see consumers back away appreciably. We might speculate that the reason for this is that over time the protein markets have traditionally seen beef command a premium when compared to pork or chicken. The traditional consumers of beef continued to buy these products regardless of the elevated price structure.
At the same time, we saw moisture return to the heavily drought stricken areas. With strong prices and good forage supplies the next step is expansion. For a bit of time, some producers held off on retaining females, opting to take some profits in the strong markets and continuing to sell females. The thing about this, however, is that someone was on the buying end and that not all these females went to slaughter. Thus herd rebuilding did begin. During 2014 it has been estimated that average profits per cow were over $500 per head.
The industry saw rapid herd rebuilding for two years as both cow and heifer slaughter was down sharply. Slaughter of beef cows was down 14 percent in 2014. This was followed by a four percent drop in 2015. While herd culling was reduced to take advantage of strong markets, producers also bred more heifers. Heifer slaughter fell eight percent in 2014 and then was down another 12 percent in 2015.
Currently the supply-demand calculations are very similar to the beginning of 2014. Cattle inventories counted 87.7 million head, with 29 million beef cows. This was the lowest number of beef cows since 1951, again a result of the extended drought across much of the Central Plains. The small number of cows contributed to a shrinking supply of feeder cattle and the subsequent record prices posted in the fall of 2014.
The National Agricultural Statistics Service reported expansion in 2015 and 2016 leading to increased beef production – 5.8 percent more in 2016, and another 4.4 percent increase is projected in '17.
Beef Supply is Only One Factor
Consider the following:
• Estimated per capita supplies of total red meat and poultry will be seven percent higher this year, and increase another eight percent next year.
• Current expectations are that the meat trade in the US will see increasing supplies for both beef and pork during every quarter in 2016, 2017 and 2018. (The Livestock Marketing Information Center, Denver, CO)
• The USDA projects this will provide approximately 218 pounds of red meat and poultry on a per capita basis by 2018. This is an increase of 16 pounds of red meat and poultry per person as compared to the supply from 2014.
Subsequently, this oversupply of red meat directly affects cattle prices and profit margins.
• This has resulted in average losses of $116 per head for cattle and $35 per head for hogs this fall in finishing operations.
• For ranchers, the reduction in feeder cattle and calf prices have had dramatic effects. For example, Oklahoma City auction prices for 750 to 800 lb. feeder steers were 35 percent lower in October 2016 than the same period in 2015. Calves weighing 450 to 500 lbs. were 38 percent lower in October 2016.
• Even with these reductions producers saw average per cow profits hold at $433 last year.
• Some forecasters are projecting as much as 65 percent decline in per cow profits. This would see average profits at around $150 over the coming year.
There are Some Opportunities
While those forecasts are rather pessimistic, some silver linings do exist.
Retained ownership may be attractive for cow-calf producers depending on calf weaning weights and their ability to modify their management. The reduction in calf prices this fall may offer opportunities for stocker operations. The current market suggests opportunities for stocker producers as well as the best buying opportunities somewhat heavier animals than typically purchased for winter grazing. This would indicate a good possibility of stocker and background cattle profitability.
This will particularly be the case if a good forage supply exists. The key here is that the producer must know forage and supplement costs of forage or costs of gain in general. These opportunities may also carryover to finishing programs.
One thing should be considered against much of this pessimistic outlook. Many areas of the Southeastern United States, which in general is strong beef cattle country, has suffered from drier than normal conditions, bordering on drought. This will create some liquidation, particularly if dry conditions persist into 2017. While this may take into 2018 these dry conditions could support the pricing structure as an industry.
Commodities, other expenses
Fortunately for producers feed and grain prices, along with the costs of other inputs such as fuel and fertilizer have softened somewhat over the last couple of years. As we come into 2017 we see lower grain prices which help reduce supplement costs and overall costs of gain. The US saw strong grain and protein production in 2016. Likewise, countries, particularly Brazil have also experienced good grain harvests resulting in a strong supply for the export market. In general, grain prices are expected to remain low to moderate with some seasonal strengthening as we get farther toward mid-2017.
Fuel prices have remained low with some strengthening as is common over the holiday season. This is expected to continue, particularly as the new administration comes in and should prove friendlier when it comes to reducing or eliminating many regulations that have proven adverse to the oil and gas industry.
VFD – Use of Antibiotics
One of the biggest changes the industry will see as we come into 2017 is the establishment of the veterinary feed directive (VFD) which requires producers to obtain a prescription for the feeding of antibiotics on farm. The likely outcome is several fold.
1) It will increase the red-tape (paperwork) required to feed these products for the vet, the producer and the feed company.
2) Many producers are willing to “explore” how well the new regulations work and make an effort to continue the use of various regulated antibiotic products and jump through the numerous hoops.
3) Many producers will simply discontinue the use of fed antibiotics which will have an effect on production and animal health. The possibility here is that performance will decline.
4) The hunt for other options to replace antibiotics is well underway as producers, consultants and various ag companies search for products or combinations of products which can be used to improve immune function and hopefully improve both health and performance.
It will be interesting to see how the industry responds and adopts the new regulations.
Good, bad or otherwise, 2017 brings with it new challenges and possibilities. The producer, as always, will show amazing resilience in riding the waves as they pass through in the New Year. From our family to yours, we pray for the best and most prosperous year ever!
Copyright January 2017 – Stephen B. Blezinger, Ph.D., PAS. Dr. Steve Blezinger is and nutritional and management consultant with an office in Sulphur Springs Texas. He can be reached at (903) 352-3475 or by e-mail at firstname.lastname@example.org. For more information visit us on Facebook at Reveille Livestock Concepts.