A classic case of supply and demand is predicted for the cattle market in 2012. “Declining cow numbers due to drought will lead to fewer calves, causing tighter supplies across the U.S., said Dr. David Anderson, AgriLife Extension livestock economist. Anderson said because of this the cattle industry will continue to maintain historically high prices.
The immediate effects of the drought in many cattle-oriented communities were large volumes of cattle being sold, so auctions enjoyed booming business – in some cases more than they could handle – and feed dealers and feed companies enjoyed strong demand as producers sought to secure feed resources to try and hang on to some animals. In the cow-calf sector, there was a boost in short-term income from selling breeding stock.
According to Extension experts 2012 target prices for 600 pound steers are $131-$138 per hundredweight during the first quarter, $136-$144 in the second quarter, $137-$147 in the third quarter and $133-$143 in the fourth quarter.
The historic drought this year marked the biggest one-year decline in Texas cow numbers ever with more than 600,000 sold by cattle producers. Cattle on feed numbers are high, which is consistent with a drought. Feedlots have been “staying current”, selling animals to packing operations at a steady clip.
Meanwhile, slaughter steer prices hit a high of $125 per hundredweight in April and a low of $105 in June. In October, they went back up to $119 per hundredweight. This is likely the result of buyers making sure enough beef is in grocery stores to satisfy first-of-the-month specials. “Prices shoot forward, then back off as grocery outlets buy what they need, then pull back due to the economy,” Anderson said.
Because exports are booming and the growing demand for choice beef, the choice-select spread has choice beef selling for “huge amounts” more than select beef. Wal-Mart, the largest grocery retail outlet in the U.S., is also selling more choice beef.
Trends of the consumer buying patterns indicate during the beginning of the recession in 2008 consumers were trying to stretch their dollar by buying more hamburger. As a result, hamburger, chuck and rounds have reached record prices. Additionally, there has been growing demand for steaks, Anderson said.
How high is too high? According to economists, the beef industry is heading into uncharted demand territory. At some point there certainly will be a limit on how much consumers can and will pay for beef, but the bottom line is, no one knows what that limit is.
With all that being said, what will the long-term impact of the 2011 drought be? In 2012, beef production is predicted to be down 4 percent. Now the drought of the drought will come – the short supplies of cattle – and we will start to see the secondary impacts of the drought such as reduced demand for feed and other inputs needed for cattle production, reduced volumes of cattle flowing through auctions and less demand for shipping. For cow/calf producers, the effect will be felt for years to come in reduced numbers and reduced productivity. And for a double-blow to cow/calf producers, there could be fewer calves in the 2011-12 calf crop. According to Dr. Derell Peel, Oklahoma State University Extension agricultural economist, the extremely hot and extended hot period probably reduced conception rates.
As the beef cattle industry contemplates rebuilding the cow herd, an important first step that should be recognized is that at some point, producers have to stop liquidation. And that, according to experts, could take a couple of years, if we in fact return to a normal weather pattern. And meteorologists have not painted a pretty picture for 2012 either.
Bottom line, tight supplies of calves will lead to higher prices in 2012. For producers that sold some stock and held on to the rest, the higher prices will offset some of the lost productivity and enable some of them to stay profitable. But, because high prices are only half of the equation, there will continue to be significant challenges in terms of managing cost of production.