What is in this article?:
For almost 20 years, I’ve coordinated a year-end review of the beef industry by independent cattle consultants. While opinions have differed significantly in previous years, these eight consultants concur that widespread drought was the major event in 2012.
For 2013, improved industry profitability will be dependent on the weather. Meanwhile, continued drought could be devastating, and students of history know that severe droughts are often several years in duration.
Nutrition Service Associates
For a second consecutive year, cattle-on-feed numbers in 2012 reflected environmental conditions that limited pasturing opportunities, while feed prices established record-high levels.
Scarcities of feed and feeder cattle continue to create competition for inputs, with little or no opportunity to operate at the margin. These realities likely favor entities with little long-term capital debt service, sophisticated risk management strategies, and the equity requirements to finance operations at a volume that will hopefully generate net income and, at the very least, at a level that can maintain equity.
Because of these realities, the industry is positioned to further segment into entities that already have, or can build, a partnership-like arrangement with a packer; and those that operate on an economy of scale that renders them less likely to have a packer alliance. A decided advantage for those entities with packer alliances is the ability to predict and exact marketing outcomes that allow for efficient cattle performance and feedyard operation; it also changes the economic considerations concerning input pricing points.
Smaller operations with the ability to procure and handle lighter, higher-risk cattle currently have an advantage in providing captive supply for entities with a packer alliance. What will be interesting to watch is how quickly the world can once again oversupply grain; and, when pasturing opportunities arise, will economics actually favor production outside the feedyard?