|Cattle Market Strong, But For How Long?|
If you have been in the cattle business for a long period of time, I don’t have to tell you about the up-and-downs of the cattle market. From low cattle prices to increasing input cost, from high cattle prices to years with drought, the cattle market in Alabama is always changing. As I am sure you realize, we are now experiencing record cattle prices and the market outlook continues to look strong. The reasons for the record pricing we are currently seeing, in my opinion, rest primarily in two areas. One is in cattle inventory numbers and the other is in input cost. A recent report from the USDA stated the following inventory numbers:
"All cattle and calves in the United States totaled 90.8 million head as of January 1, 2012. This is two percent less than January 2011 and the lowest inventory of cattle and calves since 1952.
"Cows and heifers with calves are down two percent since January 2011 while total number of beef cows was down three percent over the same period.
"The combined total of calves outside of feedlots stands at 25.7 million which is down four percent over January 2011.
"Beef replacement heifers are up one percent over last year while all cattle and calves for slaughter in all feedlots are also up one percent."
The numbers indicate some things I think will continue to lead to a strong cattle market for several months and possibly years. We are at the lowest number of cattle seen since 1952 while the world population has increased along with the demand for a source of safe, quality beef in the world market. Yes, we are more efficient in producing beef than in 1952, but the demand for beef and beef products will continue to put a strain on the supply of beef, keeping prices strong. The reasons for the decline in inventory can be traced to a couple of reasons.
First, in most people’s mind, is the drought in Texas and Oklahoma this past summer. Several producers were forced to sell all of their cattle due to a lack of grass and forage. During past droughts, feed prices were reasonable and cattle prices were low, meaning these producers found it more beneficial to buy feed and keep the cattle for the promise of better pricing down the road.
This year, feed and ingredient prices were at near-record levels while the price of cattle was at the same historic levels meaning producers were more likely to sell the cattle over trying to keep them and purchase feed. This reduction in brood cows will add even more demand with fewer numbers of calves this fall. The drought situation will also add value to replacement heifers and quality brood cows that may become available because of producers who want to bring cattle back to the farm out West, now that forage is more readily available.
Another interesting consideration is the number of cattle in feedlots being up one percent. I believe this is due to a larger number of producers selling lighter calves because of record pricing. When a 300-weight calf brings over $650, it is very difficult to encourage producers to keep those calves. While some of these light-weight calves went on winter grazing, a large number had to go into feed yards which led to an increase in cattle inventory. This will correct itself this fall as we see a reduction in calves on the market due to so many light-weight calves being sold in the spring. This reduction this fall will be very beneficial to cattle producers who keep their calves to a heavier weight because the feedlot owners will be looking for calves to fill their lots in the fall. I do believe some feedlots will close while others will see lower numbers being fed. This fact, along with cow/calf inventory being down two percent, will continue to lead to increased prices for the producer.
Another interesting fact reported by the USDA is that heifer replacement has increased one percent. I think this is due to a couple of factors.
First, with killer cow prices being strong, producers could cull more readily and keep replacement heifers to move into the herd. The advantage to this from a pricing standpoint is it will take two years for these heifers to calf, leaving this next year with even lower calf numbers on inventory. I also believe the number of heifers kept back this year may go down some because of the pricing of cattle. With high feed cost and 800-weight heifers bringing close to or over $1,000 a head makes it very difficult for producers to retain these heifers for an unknown future market.
The second reason I think inventory is down, other than the drought, is due to the age of a lot of cattlemen in the country. The average age of cattle owners is around 64 years of age. These producers are getting ready to retire and there are fewer younger producers to step in to take their place. The value of land, the lack of desire to work and the volatility of the cattle industry makes this business less attractive than in years past.
While the drought in Texas and Oklahoma did affect cattle inventory as well as feed prices and commodity availability, I think there is one more thing that will play a very important role in how long we sustain these cattle prices — the high price of corn. When I talk to producers about this, I always get a funny look as I talk about the higher corn prices helping to maintain higher cattle prices as well. My reason for this thought process is nutritionally-based and based on the feed requirements of other animal species.
I have talked in the past about the hardest issue for cattle producers to overcome is the fact that our business requires a large amount of land and a longer period of time to produce a salable product as compared to those who produce chicken, pork or fish. This can put a lot of pressure on cattle prices because the other producers can increase production rapidly in turn increasing supply to the point the cost of these products to the consumer is reduced encouraging consumers to buy these products over beef.
How higher corn prices play a role in this is pretty simple when you think about it. While cattle can be fed a diet containing forage and by-products like gluten and distillers along with corn, the diets of fish, chicken and pork primarily consist of corn. The fact they have to use corn in the diets of these animals is helping to keep their input cost raised and is keeping the cost of their product in line with the cost of beef. If corn prices dropped, this would allow them to reduce cost, increase production and rapidly put more products on the market at a lower cost.
In a weak economy, this would lead to the American consumer eating less beef and more of the other meats putting more pressure on cattle prices. All indications seem to show, with the push for alternative fuels, the price of corn should remain good and this in turn will also lead to cattle prices remaining strong.
With all this said, I do think the opportunity to improve production – in turn giving you more beef to sell – is attainable. The use of a good, palatable, high-quality mineral will improve reproductive performance giving more calves earlier in the calving season, thus making them heavier at weaning time.
I also encourage you to consider an internal and external parasite control program. Both fly and worm control cost the cattle industry billions of dollars each year. As a producer, you can implement a fly control and internal parasite control program for as little as $25 per cow per year.
With calf prices as strong as they are, you would only have to add 15 to 20 pounds of weight to either your calves or cows to make money by implementing this program. I would also encourage you to consider a vaccination program and creep feeding your calves. A good vaccination program will improve reproductive performance and will keep your calves healthy and growing in an efficient manner. The use of a creep feed will add weight gain to your calves, improve body condition of your cows and put less stress on your pastures for a lower cost than what the added weight will bring at sale time.
In conclusion, enjoy the good cattle market because I realize a lot of us have seen the opposite side of the cattle market much too often. While I realize input cost has also increased, it is nice to know our product is bringing enough to offset some of this added cost.
Jimmy Hughes is AFC’s animal nutritionist. He looks forward to hearing from you or visiting with you in the future.