Tougher times ahead for cattle. That's the gist of market economist and analyst Bill Helming's comments in the May and August issues of BEEF where he warns producers against "unrealistically high and inflated expectations" on calf and stocker prices this fall.
A recent follow-up special report was even more specific. Helming dropped his fed-cattle trading price range forecasts to $55-65/cwt., averaging $60/cwt., through the year 2000 in the High Plains.
These predictions are already being felt by lower calf and stocker prices in areas of Texas hit by heat and drought.
Helming projects prices of $60-70/cwt. on 500-lb. steer calves over the next two years. This adds up to $300-350/head, depending on quality and specific weights. That is $50-100/head less than it costs to maintain a cow, produce a calf and get paid for the operator's labor.
On 600- to 750-lb. stockers, Helming predicts prices of $58-65/cwt., assuming corn averages $2.35/bu. or below.
These market plateaus could extend beyond the year 2000, Helming believes. The reason: It will take five to seven years, perhaps longer, to get overall beef supplies and demand in better balance.
An imbalance in the overall beef supply and demand equation is caused by four factors, Helming says:
* Domestic consumer demand for beef has declined the last 18 years and market share could drop to 23-25% by 2005, compared to 46% in 1976.
* Flat or lower export sales aggravated by the Asian financial crisis.
* Large competing meat supplies, including pork.
* Continued increases in total pounds of beef produced per unit of total cattle and calf inventory. We will produce 25.7 billion pounds of beef in 1998, the same as in 1976, the second largest year in total cattle inventory, but with 26.5 million fewer cattle and calves.
Inventory liquidation and downward price adjustment are the only options left to bring supply in line with declining demand, Helming says.
We're in a whole new cattle cycle, Helming warns. The nation's cattle and calf inventory stood at 99.5 million last January 1. It will drop to 88-90 million within the next five to seven years. This is the same number as in 1952-53.
The projected 4 million drop in calf numbers has far-reaching implications. Empty feedlot pens plus excess pasture, beef packing and processing capacity will put downward pressure on the value of feedlots, ranches, pasture leases and feed grain prices. The result: some higher cost operations will go out of business. Others will consolidate with more cost competitive operations.
Who's At Risk? In the cow-calf segment, most at risk are highly-leveraged 50- to 350-cow operations with relatively high costs. The lower-cost operators with modest debt likely will weather the storm from these low cattle prices. The-less-than-50 cow operator won't likely contract or expand regardless of calf prices.
Packer consolidation should be less than at the feedlot or cow-calf levels because pounds of beef produced continues at near-record levels.
"Now is the time for the leadership of the U.S. beef industry to establish new focus and priorities, followed by bold and specific actions," Helming says.
Fifteen to 25% of the total industry has a real chance of participating and benefiting directly from the value-added approach to produce consistent, superior-branded beef products on a demand-pull basis, Helming says.