Record prices for feeder cattle mean packers will have to get more for their beef, and that consumers will pay more for beef in grocery stores and restaurants.
Seldom has the beef industry begun a new year with so much hope and expectation. Much of cow-calf country is recovering from severe to catastrophic drought that pushed the U.S. cattle population to its lowest level since 1952. The hope is that pasture conditions have improved enough to allow producers to expand their beef cowherds. The expectation is that because of the reduced numbers, prices for all classes of cattle will set new record highs again this year.
USDA’s annual Cattle Inventory report will be out by the time you read this. All eyes will have been on two categories: beef cow numbers and beef replacement heifers. There will be particular focus on the five largest cow-calf states: Texas, Nebraska, Missouri, Oklahoma and Kansas, which lost a combined 872,000 beef cows during 2012. So it is important to see whether their cow numbers stabilized in 2013.
The replacement heifer number is even more important to gauge whether producers have enough grass and water to feel confident about expanding their herds. Producers at the start of 2013 said they intended to hold back 100,000 more heifers than the year before. But they didn’t follow through with this intention, partly because it was more profitable to sell these heifers.
BEEF polls indicate that most of the magazine’s cow-calf readers will be expanding their herds this year. But this will depend on ongoing improvements in pasture conditions, and whether producers can resist the expected record prices for calves and feeder cattle.
Another hope relating to the cattle supply is that the mandatory country-of-origin labeling (COOL) law is amended or repealed, which would then allow more Canadian and Mexican cattle to enter the U.S. Imports of Mexican feeder cattle last year were 33%, or 472,000 head, lower than the year before. This had a significant impact on the ability of Southern Plains feedlots and fed-beef plants to operate efficiently.
Conversely, Northern Plains and Northwest cattle feeders benefited from COOL, which caused more feeder cattle — but fewer fed cattle — to be imported from Canada. Last year saw 180,800 more feeder cattle come south, but the total was still only 315,600 head.
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Producers will also hope that feed costs at both the ranch and feedlot levels continue to moderate, after favorable declines last year. December corn prices were down by almost a third from their August average, which helped cattle feeders enjoy positive margins after 18 months of severe equity erosion. Even winter wheat in December was in good to excellent shape for grazing.
These factors and the scarcity of numbers meant feeder cattle prices rallied contra-seasonally last fall to record levels. For example, 750-800-lb. steers at Oklahoma City averaged a record $162.95/cwt. in November. USDA forecasts that prices for this class of cattle will average $163-$172 this year, vs. $147 last year. It forecasts that Choice fed steers will average $128-$137, vs. $126 last year.
Such price levels mean packers will have to get more for their beef, and that consumers will pay more for beef in grocery stores and restaurants. This is where hope and expectation get more uncertain. Beef demand at retail was surprisingly strong last year, even though retail prices advanced almost each month to new record levels. Consumers appeared willing and able to buy Choice beef at an average price that was up at least 5% from the year before.
Whether they continue to pay up this year will depend on the heavy beef users and the millennial generation. My three children are in this latter group so, like the Cattlemen’s Beef Board, I’m educating them as to what cuts to buy and how to prepare them. I hope you’re doing the same thing, as the future of the industry depends on getting this large generation to eat more beef.
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