My View From The Country

It’s More Than Just A Question Of Moisture

Normal moisture is exceedingly critical to the beef industry’s fortunes in 2013, but significant cowherd expansion won’t happen unless profitability is addressed.

USDA’s most recent Cattle On Feed (COF) report showed placements and COF numbers at levels that are unprecedented since the data series began in 1996. Everyone continues to be focused on the weather situation, which has precluded any chance of expansion thus far, and may actually cause 2013 to be yet another year of liquidation.

Without a doubt, moisture is the key in the short term. With moisture, we’ll see a decrease in input costs; and we should see a double-plus situation where margins are increasing from both an increase in prices received and a decrease in prices paid for inputs.

Still, it’s a valid question to ask how much expansion will occur when moisture conditions improve. There’s little doubt that prices and rain will result in a rebuilding of numbers, but it’s also probably true that the industry will never see the type of numbers we once had. Our genetics are improving at a phenomenal rate, which means we’ll never need the cow numbers we once did to meet demand.

The forced liquidation of our cowherd over the last few years has also translated into one of the most effective culling periods in our history. The poorer-end cows have been liquidated, and the average genetic value of today’s cowherd is significantly higher than just a few years ago. Not only are we seeing improvement in genetic trends from a seedstock industry perspective, but we effectively ratcheted up to unprecedented levels the selection pressure in the cow-calf sector. We simply need fewer cows today to produce the same amount of beef.

There are two ways to look at these numbers:

• The expected further declines in calf numbers, especially when expansion begins, will result in even tighter supplies in the near term. Of course, the converse is also true in that small increases in cow numbers will result in larger increases in production.

• Then there are questions about demand. We continue to rely disproportionately on exports to bolster demand. The subsidization of ethanol had two effects: it led to a significant downsizing of our cowherd, and reduced the volume of product we can sell profitability at various price levels. Demand has been more resilient than many experts had predicted, but higher prices typically mean less volume.

Couple that with the fact that capital requirements to run a cow have been growing at a far faster rate than prices have increased, and we have an entirely different relationship between margins and how producers will respond to them. Sure, $100/calf profits are nice, but they no longer are sufficient to encourage producers to expand significantly, as the per-cow unit cost of production has grown to a point where profits have to be significantly higher than in the past to trigger expansion.

 

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Throw in the fact that livestock production is no longer competitive with grain production from a profitability standpoint, and one has to question whether diversified producers will respond as they have previously to improving cattle prices. For diversified ag operations, livestock production is no longer a significant contributor to profits; more importantly, it’s no longer a necessity.

Diversified operations are now making the base-line decision about whether or not the cattle enterprise is worth their effort; not too long ago, it was considered a vital part of the operation. Certainly, expansion will occur when Mother Nature decides to cooperate, but without drastic increases in profitability, expansion will likely be smaller than many people anticipate. 

 

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What's My View From The Country?

As a fulltime rancher, opinion contribur Troy Marshall brings a unique perspective on how consumer and political trends affect livestock production.

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Troy Marshall

Troy Marshall is a multi-generational rancher who grew up in Wheatland, WY, and obtained an Equine Science/Animal Science degree from Colorado State University where he competed on both the livestock...

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