Agriculture economist predicts good times ahead for nation’s cattle producers

082714-cattle-beef“Recent declines in daily cattle market reports are not reason for alarm.”

Glynn Tonsor opened his remarks in clarification of that serious concern being expressed by many of the 175 cattlemen attending the beef producers information seminar, during the Flint Hills Beef Fest, Aug. 23-25, at Emporia.

“Cattle prices have been steadily increasing for months to an all-time high, and that in reality cannot continue forever. The cash price reductions over the past week and a half are a necessary ‘correction’ in the markets in my opinion,” said the associate professor of agricultural economics at Kansas State University, in Manhattan.

During the breakfast program hosted by 580 WIBW, Tonsor, who specializes in livestock marketing, continued with a most positive beef cattle industry outlook.

“Beef supplies are continuing to come down both in number of cattle and the pounds of red meat, which actually brings mixed signals of expansion in the overarching beef industry economic outlook,” Tonsor said.

However, adding to confusion, but a very positive note for cattlemen, demand for beef by consumers in the second quarter of this year was the highest since the fourth quarter of 2004, nearly 10 years ago.

“This is reinforced by record-setting pork demand,” Tonsor pointed out.

“Combined supplies and demand have brought our ‘historic’ price levels, creating excitement, but yet also some uncertainty for the cattle industry,” Tonsor admitted.

In a detailed presentation, the livestock economist showed that estimated annual average cow-calf returns over cash cost, including pasture rent, are almost $450 this year, and are predicted to be down only slightly next year.

This compares to a previous high of $150 for cow-calf returns in 2004, and 2005, and about $125 per pair in 2013.

Cow-calf operators were said to have lost about $90 per head in 1996, with 1995, 1998, 2008 and 2009 also shown as years when cow-calf producers had negative returns.

The years 2004 and 2005 showed estimated cow-calf returns nearly $150, while all of the other years indicated profits ranging from just a few dollars up to about $95, in 1987.

“With the high returns to cow-calf producers, there has still not been apparent desire for cattlemen to increase cowherd size. What will it take to trigger herd expansion?” Tonsor queried.

Reflecting again on market decline concerns being aired earlier in the week, and just prior to the program, Tonsor showed that 400 to 500 pound number one steer calf prices passed $300 in July, and the few cents dip in recent days is still sharply above all of 2013, and much more than a dollar higher than the average from 2008 through 2012.

A year ago in late July, Southern Plains calf prices averaged about $180.

Tonsor said 550-pound steers at selected Kansas auctions averaged $190 on May 1, this year, up to $215 on July 1, higher to $220 August 1, and still $209 on the day before the seminar, despite declines initially alarming to the cattle industry.

Low beef supplies have kept slaughter cow prices at record prices, as obvious to any cattlemen merchandizing cull cows in recent weeks.

“All of this year, cow prices have averaged well above any other time in history,” according to Tonsor.

Starting the new year, average cow price was $86.50, and the early August slaughter cow price was $135. Highest Southern Plains 85-90 percent lean weekly cow market of 2013 was $76 in early September.

From 2008, through 2012, slaughter cow prices ranged from a low of $53, to a high of about $66.

“Poor and very poor range and pasture conditions are keeping cowherd expansion down,” explained Tonsor, showing how numbers of beef cows in states with 40 percent poor to very poor range conditions have declined sharply over the past year.

Heifers held as beef cow replacements as of mid-year have remained the lowest in 30 years.

It is estimated that 4.1 million heifers were being retained as beef cow replacements on July 1, this year, which is down 2.4 percent from 2013, when about 4.2 million heifers were retained, equal number to the previous two years as well.

Almost 6 million heifers were being kept for replacements in July 1994, the highest retention in the three decades.

With the smallest nationwide cow herd since 1962, down almost 1 percent from a year ago, Tonsor reiterated his questions: “There will be cowherd expansion, but how fast will it be? How large will the count get? How long will it continue?”

There are two thoughts about those questions, depending on the forecaster-analysis.

The Food and Agricultural Policy Research Institute (FAPRI) projections, as of March 2014, are for the nation’s cowherd to start advancing next year from 28.9 million head now to 29.4 million in 2015, then 30 million a year later, reaching a peak of 30.9 million head in both 2018-2019, and then dropping off to 30.8 million by 2020, and on down to 30.1 million by 2023.

Contrastingly, the United States Department of Agriculture’s Economic Research Services (ERS) February 2014 projections are for the present inventory, at 29.05 million, increasing to 29.34 million a year from now, on to 29.67 million in 2016, and sharply advancing at the rate of about a half million cows annually to a peak of 33.66 million beef cows in this country by 2023.

The ERS 2023 cowherd would be 16 percent larger than 2014, equaling the year 2000, while the FAPRI 2023 cowherd would only be 4 percent larger than this year, 2014, equaling inventory in both 2012 and 1962.

“My calculations are somewhere in-between those predictions, but I think the inventory increase will be closer to the ERS forecast,” Tonsor said.

There is a very attractive value of gain versus cost of gain for those in many stocker and backgrounding areas, with notably higher value of gain than feedlot cost of gain projections, the economist contended.

He predicted that a 550-pound calf could be purchased for $227.21 on September 17, 2014, then sold on December 24, 2014, weighing 750 pounds, with an average daily gain of 2.02 pounds, and sold for $200.29 per hundredweight, with the value of gain being $126.27 a hundred.

Or the same steer could be sold on Feb. 11, 2015, weighing 850 pounds, with an average daily gain of 2.03, for $194.29, with a value of gain at $133.95 per hundred.

In an economic outlook overview for feedlots, Tonsor verified, “This year, 2014, to date has been much better than 2013, but fed cattle breakeven prices are rising rapidly. Excess capacity concerns persist due to the lower calf crop, heifer retention, packing plant closures and mandatory country of origin labeling.”

Feedlot closeout projections have been extremely high in July and are predicted to continue through September, but Tonsor forecasted losses for finishing steers in Kansas feedlots during November and December, largely due to extremely higher feeder prices.

For August, feeder prices are expected to average $169.66, with cost of gain being $87.75, and selling price of $156.33, for a net return of $258.09 per head, compared to $364.09 in July, according to figures presented by Tonsor.

However, projected values for a finished steer in December showed a loss of $72.98 per head based largely on a feeder price of $21.35, with cost of gain and selling price nearly steady to August. It would require a feeder price of $202.72, and a fed price of $160.08 for December feedlot breakeven, according to Tonsor.

Feedlot inventories in the United States are presently about 10.25 million head, almost equal to the 2008-2012 average, and a year earlier, but still above the 9.78 million cattle on feed in September a year ago.

Some of the best news related by Tonsor was the continued year over year increases in beef demand in 14 out of the last 16 quarters from third quarter of 2010 through the second quarter of 2014, which totaled 6.7 percent expansion.

Per capita all fresh beef consumers in the second quarter was down 2.8 percent with real all fresh beef prices up 10.2 percent, at $5.49 per pound, the nominal price.

“If real all fresh beef prices had only gone up 3.3 percent, there would have been zero demand change,” Tonsor calculated.

Commercial beef production has gone down every quarter this year, compared to last year, and the average of the five previous years, with next year’s production also forecast down in each quarter.

Pork production has been up, or nearly stable, each quarter during the past six years, with increased pork production seen in the first quarter of next year, followed by nearly stable quarterly pork production for 2015.

However, broiler production has been up throughout the six year period, with sharp advances seen for every quarter of 2015. Total red meat and poultry production is seen higher for all of 2015.

In summary, Tonsor listed take-home points for the cattlemen in attendance.

“There are tight meat and live animal supplies, plus strong retail meat demand plus sound pastures and mixed expansion signals, which equals record prices throughout the industry, cow-calf returns and cash at-stake,” the economic forecaster most optimistically predicted.

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