What is in this article?:
- 2013 Beef Industry Outlook: Are Consumers Near Their Price Limit?
- Fed & feeder markets strengthening
Supply is the story that just doesn’t go away. And, if anything, it will be exacerbated in 2013, starting with the cowherd.
Fed & feeder markets strengthening
Turning our attention to the production side, both the fed and feeder cattle markets have found some renewed support at the CME. April live cattle have resurged during December with the contract establishing a new lifetime high at $138/cwt. Meanwhile, the spring feeder cattle contracts have followed accordingly and flirted with $157-8/cwt. The strength is being driven by hopes for solid demand and ever-tightening supply throughout the beef complex.
Supply is THE story that just doesn’t go away. And, if anything, it will be exacerbated in 2013, starting with the cowherd. The cow marketing rate is always very telling regarding year-to-year intentions among cow-calf producers. It reflects their relative ability, and risk appetite, to retain vs. market cows. In aggregate, that spells either expansion or contraction.
Figure 3 depicts that reality. Since the mid-'90s, the cow marketing rate serves as a fairly reliable predictor for the following year’s cow inventory. An annual cow marketing rate of approximately 8% would equate to a steady number of cows (lower rates equal expansion, higher rates reflect reduction). The marketing rate in 2012 should be approximately 11%: that equates to an approximate decline of 2% for 2013’s starting cow inventory (or about 29.3 million cows in 2013 – down from 29.9 million head in 2012). Therefore, there’ll likely be continued shifts in business strategy all around the protein complex (See "Industry At A Glance: Out-Front Beef Sales Increasing.").
Canada, Mexico feeders dwindling
That’s compounded even further by the likelihood of dwindling feeder cattle imports from Canada and Mexico in 2013. With respect to the feeder market, all things will turn on weather and grass availability in the coming months. Strong fall futures and grass fever (if there’s some spring rain) will prove especially supportive to the calf market. And if that occurs, there may be an even bigger bite out of supply with the possibility for increased heifer retention. Conversely, another dry year could prove very disruptive to the feeder cattle market from the standpoint of grass availability, subsequent early bunching of feedyard placements and tight corn inventory.
A Closer Look: Border Imports Portend Tighter Feeder Cattle Supplies
Considering the hectic business conditions in 2012, one would like to think it might get easier in 2013. No such luck – there are still lots of external factors that must be sorted through on an ongoing basis (we haven’t touched on the international markets – another discussion for another day). So for now, look for continuation of some busy days ahead.
Whatever your role in the value chain, daily challenges around the business are compounded by the ongoing escalation of capital-at-risk. Therefore, mentioned every month as an important reminder, there’s always the need to remain informed and maintain objectivity around all aspects of the business. With that in mind, Benjamin Graham provides some enduring advice that holds true for any owner/manager making important business decisions (The Intelligent Investor, c. 2003): “Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it – even though others may hesitate or differ.”