While Cornbelt grain producers are hoping the current low price of corn is only temporary, cow-calf producers and feedlot operators are trying to determine just how temporary it is. However, the market is satisfied abundant supplies of corn and that subsequent low prices will be here for the foreseeable future. Subsequently it has been willing to offer higher prices to the cattle industry that are enticing more production. Will the cowboy bite on that bait?
Since the summer lows in August, finished cattle prices have moved toward $130, due to the anticipation of small beef supplies in the coming year. Purdue economist Chris Hurt says supplies will be down about 5% for the balance of the year and well into 2014. He says while the South Dakota loss of cattle is psychological, the numbers are miniscule in terms of the entire national cattle herd. However, the unfortunate episode is built into the current trend that helped feeder cattle futures reach a record $1.70 in mid-October. That was a function of high futures prices for finished cattle and low prices of corn. And calf prices have continued to work toward $200, with some isolated reports of that level being reached on occasion.
Hurt says prices are expected to move into the low $130 range in the current quarter, with more demand pushing prices into the mid-$130s early in 2014. He expects both 2013 and 2014 to set new annual records for cattle prices.
Watching that scenario closely is the cow-calf producer who sees 2014 returns over cash costs doubling his returns from 2013 and the prior record returns established in 2004 and 2005. The questions are just how long will corn prices stay down, will there be pasture and range land to produce calves, and will the ultimate consumer demand keep supporting beef prices?
In the meantime, Iowa State University livestock economist Lee Schultz says the cow-calf producers have a growing incentive for herd expansion with strong profit prospects. However, he said the mind of that cow-calf producer is wondering if there is enough return to warrant a substantial effort to rebuilding that herd? Currently, the Livestock Marketing Information Center is projecting a $300 return per cow over cash costs in 2014. Those costs are based on typical production practices and include pasture rental.
The yardsticks to measure whether those cow-calf producers are making that decision are beef cow slaughter and heifer retention. So far in 2013, cow slaughter has been more than 3% below 2012 and nearly 8% below the prior 5 year average. Schultz says normally beef cow slaughter goes up at this time of year, but it has been holding steady, and is now more than 15% below the rate of slaughter at this time in 2012. And he says the culling rate is less than typical, suggesting “the industry could be on the verge of beginning herd expansion.”
Evidence points to trends in livestock production that economics and the marketplace are driving an expansion in numbers in the nation’s cattle herd. While the drought cut numbers due to lack of pasture and high feed prices, those factors are being reversed. As a result, cattle prices are climbing, feedlot operators are welcoming more feeder calves with higher prices, and there are higher returns for cow-calf operators.
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