Cattle Producers Learn How To Deal With Smaller Profit Margins

By Blair Fannin

Kody Lucherk, Powder River territory sales manager, demonstrates a calf table at the 62nd Texas A&M Beef Cattle Short Course. (Texas A&M AgriLife Extension Service photo by Blair Fannin)

After two years of historic high cattle prices, a record 1,900 producers attending the Texas A&M Beef Cattle Short Course in College Station learned more about the current decline in prices and maintaining profitability despite declining profit margins.

“We’ve had quite a run over the past two years with regards to high cattle prices,” said Dr. Jason Cleere, conference coordinator and Texas A&M AgriLife Extension Service beef cattle specialist, College Station. “Cattle prices fell considerably last fall and ranchers are concerned with where they will go in the future.”

Beef producers attending this week’s short course were all too familiar with the decline in prices.

“If prices would just stabilize, it would take some panic out of the market,” said Greg Goudeau, cattle producer and owner of Navasota Livestock Auction Co.

“We’ve seen quite a slide, 40 percent, which is quite challenging,” said Gerald Sullivan, who co-owns Santa Rosa Ranch in Navasota and Crockett with his daughter, Kelley Sullivan. “Not everything is bad, not everything is good. We’re also seeing an uptick in per capita consumption of beef. That’s directly related to the cost as far as I am concerned. I believe we are going to be looking at two or three years of this before we see a turnaround. I’m not sure where the bottom is at this point, but we’ve seen this before.”

Dr. Ted McCollum, AgriLife Extension beef cattle specialist, Amarillo, said during the general session, “It’s like a game of limbo right now. How low can you go? Price discovery in the fed cattle market has been an issue as well as volatility in the futures markets and relation to the cash markets.”

Duane Lenz, CattleFax market analyst, said it was the best of times when prices rallied to historic levels in 2015 and hundreds of dollars in profit margins were raved.

“Looking back at historical returns, in 2015 it wasn’t good; it was really, really good,” he said.

But when prices started to break going into the fall and spiral downward, Lenz said feeder operators who paid high bids began holding on to cattle, feeding them longer, hoping for prices to come back up to a level of profitability. When those cattle went to slaughter, weights were significantly higher and lots of beef was on the market.

That also pressured prices downward, he said. As a result, that left a lot of beef that continues to be cycled through the chain, which has weighed heavily on prices. Commodities across the board, led by the energy sector, have seen sharp declines due to global economic concerns, which hasn’t helped spark strong rallies in cattle prices.

Looking forward, Lenz said consumption is forecasted upward and export demand for beef is also projected higher in the coming years. That’s good news, he said, as lower cattle prices have also trickled down to the retail meat case and major grocery chains have returned to featuring beef cuts in weekly sales flyers.

Though prices won’t reach historic levels seen in 2015, the floor price for a 550-pound steer is targeted at $155 per hundredweight, he said.

“Could we see $150 to $155 in the coming years? We probably could,” Lenz said.

But just two weeks ago, Lenz said Kansas fed-cattle prices reached as low as $115 per hundredweight.

“Now we’re getting in the mid-$120s,” he said. “There’s no reason we can’t be there as we finish out the year. But going into next spring, $105-$110 is a possibility.”

By comparison, 2015 prices got as high as $275 per hundredweight for a 550-pound steer.

The beef short course is one of the largest beef-education workshops in the country. This year’s short course attracted participants from 24 states and eight countries, Cleere said. Many attended the two-and-a-half day event to receive comprehensive education from a variety of experts.

“Where else can you go in Texas and find 1,500 ranchers and vendors?” Goudeau said. “It’s not just the sessions, but an event to find out about what your friends and neighbors are doing with their operations. It’s a rancher’s family reunion. It’s a place to learn more about the hot topics in the industry.”

“There are a number of different sessions you can attend and really pinpoint what we are doing and you can do it all at one time in one place,” said Sullivan, who operates a seed-stock cattle operation. “You don’t get to see all the people at the same time. Plus the trade show, you pick up on tidbits of information that are valuable to your operation. For us, two things, we meet with our customers and potential customers and having all the experts in one place. It’s efficiency, getting to see everyone at the same time.”