My View From The Country

Survive Today And Prosper Tomorrow

Weather and markets are proving challenging to producers, but better times are most assuredly ahead.

It seemed like every email I opened this week was from an economist. While there seems to be some disagreement over whether this is the worst drought in 50 or 80 years, everyone agrees it’s dry enough that liquidation is continuing.

Last month, retail beef prices hit a record-high, and are expected to increase sharply in the short term, raising serious questions about the long-term prospects for beef production. At the same time, feedyards are seeing some closeouts that are as much as $300 in the red. While corn has surged by over 60% since June 15, thus reducing the value of feeders and calves, the decline in calf prices isn’t expected to offset the increase in feed costs.

Industry Related Resource: Drought Management

We’re just entering the point where most people are running out of grass. Unlike in the past where producers had to make the decision to feed through the drought or sell cows, there’s very little to the decision process this year. In the most drought-affected areas, feed prices will force producers to embrace the old adage that you can’t feed your way through a drought.

Beef output is expected to drop by 3.9% in 2013, according to USDA estimates. Meanwhile, beef prices are projected to rise by as much as 5%, outpacing the price growth in any other food group. The corn harvest is expected to decline by 13%, likely driving record-high prices even higher, and the increases in hay price look like they might exceed those of corn.

Closer Look: Tips On Surviving High Feed Costs

We slaughtered about 3.1 million cows so far in 2012; that’s 300,000 head more than the 10-year average. What makes that number significant is that liquidation didn’t really begin until about the middle of June.

Meanwhile, exports are declining rapidly as U.S. prices, combined with the strength of the U.S. dollar, have priced U.S. product out of the global market.

All these historic numbers are combining to create historic times. Of course, the future will bring record prices and, if Mother Nature cooperates, record profits. The trick is that one has to survive the current challenge to get to that point.

Conversely, the decline in numbers also presents some long-term challenges. Per-capita beef consumption is expected to drop to unprecedented levels, and the industry is expected to lose key infrastructure. Once you lose market share, it is difficult to regain it.

Discuss this Blog Entry 4

Anonymous (not verified)
on Aug 24, 2012

Troy, your last paragraph, with the added statements of government agenda driven policies. BLM/School Lunch Programs, ect. age of operators and consolidation makes for a cloudy crystal ball. Mother Nature is fundamentally changing the meat industry for ever. Takes special glasses to be able to see faint visions of the future. What you see would be valued.

on Aug 24, 2012

Forgive me for barging in from Argentina ...but my heart goes out to all of you who are experiencing this second year of tremendous drought in North America.

My experience here tells me that Mr. Marshall is seeing your situation very clearly. The parallels with our great drought of 2007-2008 back him up completely.

Any rancher who could survive those days prospered in the morrow. Prices on the hoof quadrupled (and more) almost immediately and suddenly ranching came to feel like a real living. Those prices are still are still with us and have made it almost impossible for competing ranchers to get back in the game.

I think Marshall is right on a couple of other points, as well. Argentina is no longer the beef-eatingest nation on earth and many feedlots and meatpackers have gone out of business for what looks like forever. Markets have been lost to the point where a huge re-think was necessary for everyone and we haven't stopped re-thinking since.

Of course, we have problems here that you would never dream of ...Argentina practically prohibited the export of fresh beef in order to keep the local supply up. Price controls were instituted to keep down the price. Cheap beef here is considered a birthright along the lines of cheap gasoline in the US.

Well, the prices didn´t stay down but the continued export "ban" keeps the supermarket shelves stocked ...about to the point that ranchers no longer give a damn about being able to export.

Down here, nobody ever expects to be able to expect anything. Nobody rolls with the punches like an Argentine. It´s not exactly comfortable but it keeps you on your toes.

I wish you all the very best ...and the best of luck surviving today. If you can pull it off (my wife and I pulled it off out of sheer stubbornness more than anything else), there's a brighter and more interesting world out there in your tomorrows.

May God bless,
Mike
www.yanquimike.com.ar

Jim (not verified)
on Aug 30, 2012

Thank you, Mike

Even at 76 your words of encouragement are greatly appreciated!

May God be with you,
Jim

Anonymous (not verified)
on Aug 31, 2012

I agree with Mike. Ranchers who sell today will regret it tomorrow.

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What's My View From The Country?

As a fulltime rancher, opinion contributor 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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