Cattle market prices for 2014 should remain fundamentally strong and average 5 to 8 percent higher than this year, according to the latest U. S. Beef Cattle Situation and Price Outlook from Auburn University Extension Economist Walt Prevatt.
“As should be expected, the 2014 cattle market has the potential for some big price swings. Abrupt changes in several factors could add much volatility to 2014 cattle market prices.
“Cattle farmers will need to search for ways to lower their unit cost of production — what it costs to produce a pound of beef — and ways to enhance market prices in order to achieve and enhance profitability during 2014,” says Prevatt.
A few of these factors include the growth of the U.S. economy, high levels of unemployment, level of consumer confidence, political gridlock and chaos at all levels of government, an upcoming U.S. congressional election, and various and sundry other issues, he says.
“There is little wonder why future economic uncertainty is fresh in the minds of many U.S. citizens. The decisions made on these issues are believed to have an overwhelming affect on business and consumer spending and our future prosperity,” says Prevatt.
U.S. cattle farmers are continuing to decrease their inventory of cattle and calves, says Prevatt.
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The major factors responsible for causing cattle inventory declines include a combination of high production costs (feed, fertilizer, fuel, labor, land rents, etc.), lower levels of profitability for many farmers, larger levels of competing meats, and alternative uses of land (pasture acreage moving into grain production and/or conservation programs and other non-farm uses such as recreation and rural non-farm development) and weather.
“Thus, given the current lackluster level of profits and immense uncertainty in the U.S. general economy, cattle farmers will likely continue to liquidate cattle numbers until profitability can be achieved at a level commensurate with the level of risk incurred and more stable economic conditions are realized,” he says.
In the Jan. 1, 2013 Cattle Report, cattle farmers told USDA they had about 863,000 fewer beef cows that had calved (-2.9 percent) than a year ago. Beef cow numbers were 29.3 million head.
Beef cow replacements up
Dairy cow numbers were basically unchanged from a year ago at 9.2 million head. Beef cow replacements were up 99,000 head from a year ago at 5.4 million head (1.9 percent). Dairy cow replacements at 4.6 million head were down 71,000 head (-1.5 percent) from a year ago.
A net decrease in total cows (-872,000 head of beef and dairy cows) and a net increase in total replacements of 28,000 head (+99,000 head of beef replacements and -71,000 head of dairy replacements) at the beginning of 2013 suggests that herd liquidation will continue during 2013, says Prevatt.
“The Jan. 1, 2014 inventory of total cows will likely be smaller also. Too few replacements heifers are being retained to expand the cow inventories.”
A smaller inventory of cattle and calves and smaller calf crop during 2012 will limit beef production during 2013 to a level of about 25.6 billion pounds (-1.2 percent from a year ago).
“USDA projects U.S. beef production during 2014 to be about 24.2 billion pounds (-5.7 percent from a year ago). This level of beef production will be influenced by any adjustments in average carcass weights and the level of feeder and live cattle imports (from Canada and Mexico).”
There were decreases in inventory estimates compared with one-year-ago for all categories except beef replacement heifers (1.9 percent) and FCOF-feeder cattle outside of feedlots (0.7 percent).
The 1.9 percent increase in beef replacement heifers represents an increase of 99,000 head as of Jan. 1, 2013, compared to a year earlier, while the -2.9 percent in beef cow inventory represents a decrease of approximately 863,000 beef cows.
Thus, the increase in beef replacement heifers is not sufficient to cause an increase in the beef cow inventory on Jan. 1, 2014.
The increase of 0.7 percent in feeder cattle outside of feedlots (FCOF) was an increase of approximately 185,000 head and may be largely attributed to extremely high feeding costs in feedlots.
The 2013 growing season for the major corn growing regions started with a late planting schedule due to wet weather, says Prevatt. Acreage planted was estimated at 97.4 million acres.
“Industry expectations were for a 14-plus billion bushel corn crop. However, wet and dry weather impacted growing conditions and caused yield levels to be variable in most of the major grain growing areas.
Average growing conditions
“The majority of the crop experienced average growing conditions most of the season. Additionally, hot weather during late August and early September was expected to slightly decrease yields in some areas.
USDA’s current corn and soybean production forecasts are 13.8 billion bushels and 3.1 billion bushels, respectively, for 2013. If these production levels are realized corn production will be about 3.1 billion bushels larger than a year ago (28.4 percent) and soybean production will be about 0.1 billion bushels larger than a year ago (4.4 percent).
Corn and soybean futures prices have fluctuated widely this year due to the vagaries of the weather and forecasted larger crops projected for this year, says Prevatt.
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“Corn and soybean prices are expected to move lower in 2013 due to the potential of increased supplies worldwide. Therefore, livestock farmers should seriously consider taking steps to procure their feed purchases during the 2013 crop harvest.”
The tight stocks-to-use ratios of U.S. soybeans will keep market analysts monitoring the sizes of crops in Europe, Asia and South America, he adds.
“Soybean prices are high and should encourage additional production. Favorable weather and growing conditions will be extremely important to reduce the pressure on soybean stocks to use ratios.”
Another factor that can affect feed prices and feeder calf and feeder cattle prices is the level of export demand for corn and soybeans, says Prevatt.
“Any major changes in world export demand for these commodities and/or their by-products could significantly move market prices.”
Economic growth in several Asian countries has begun to slow down. Additionally, the strength of the U.S. dollar is certain to influence the world export demand, as a weak U.S. dollar improves U.S. grain export demand, he says.
Fortunately, pasture and range conditions have been better over many of the cow-calf states this year, says Prevatt.
“These improved pasture and forage conditions, coupled with lower feed prices and higher cattle prices, may result in more heifers being retained and fewer mature animals being culled in 2013 and 2014.
“Due to the drought during the last three years, a higher number of beef and dairy cows were sent to slaughter which should result in a younger cowherd on farms.
“The current weather forecast for the Southeast is for the 2014 winter to be colder and drier than normal and the summer to be hotter than normal with near-normal rainfall.
Should support herd expansion
“ If cattle market prices improve, this weather should support herd expansion efforts.”
Total 2013 U.S. hay production is expected to be larger than a year ago, he says. “However, higher inputs costs will contribute to continued high hay prices. Therefore, alternative winter forages and feedstuffs will be in much demand this winter as cattlemen seek to feed their cow herds and stocker cattle.”
U.S. beef demand has felt some challenges since the recession of 2008 due to high unemployment, rising prices, and tightening consumer grocery budgets, says Prevatt.
“Domestic beef demand is expected to be further tested during 2014, as consumers continue to experience rising prices for most goods and services.
“If consumer disposable income does not rise proportionally, shopping habits and choices will shift as prices rise forcing consumers to substitute and/or reduce the bundle of goods and services they consume.
“The U.S. economy during 2014 is expected to grow GDP between 2 to 3 percent. GDP growth above and below this level with enhance or adversely impact domestic beef demand.”
Per capita consumption of beef is expected to decline during 2013 and 2014, he says.
“The combination of lower domestic beef production, a modest increase in imports, and slightly lower exports is expected to decrease domestic net beef supply marginally in 2013.”
Prevatt says that as the U.S. population increases in the future, per capita beef consumption likely will be lower unless one of more of the following situations occur: U.S. beef production increases, U.S. beef imports increase, and/or U.S. beef exports decrease.
Any unexpected changes in the growth of the U.S. economy, unemployment, and rising costs of other goods and services could test beef demand and recent increases in retail beef prices, he says.
It is very important, says Prevatt, that the U.S. continues to sustain and grow beef export markets.
“These export markets could be worth $5 to $10 per hundredweight on the value of fed slaughter cattle. Growth in beef export markets will also help to moderate the price impacts of any weaknesses in U.S. broiler and pork exports.”