We hear much about a “new normal” in the U.S. beef industry these days – a term that conjures up both good and bad thoughts for U.S. beef producers. On one hand, cattle prices for all classes of cattle continue to nip new highs; on the other is anxiety over a shaky economy and volatility in inputs.
It’s that combination of factors that is reflected in the “stressful optimism” expressed by BEEF readers in our annual survey of producer attitudes. The April survey indicates BEEF readers are largely optimistic about their business prospects in the short-term, but less so about the long-term (next five years and beyond).
In fact, the attitudes of BEEF readers on the industry’s short- and long-term prospects have flip-flopped over the course of the past four surveys. In 2008 and 2009, survey respondents indicated pessimism in the short term due to volatility in input costs (most notably energy and feed), but optimism that moderation would come in the long term.
But the past two years’ surveys show readers have reversed their sentiments, expressing optimism over the short-term due to lower cattle numbers, higher prices and improving demand, but pessimism over some of the long-term trends and fundamentals.
Short-term optimism among BEEF readers is definitely running high, says Scott Grau, BEEF research manager, characterizing the results of the latest BEEF reader survey.
“This is driven by the current supply/demand fundamentals and increased international demand. The current high prices for both fed cattle and stockers are reflected in these results. I think the index score is lowered slightly by the current high input costs of corn, forages and land compared to 2010,” he says. Grau characterizes the long-term optimism as “restrained but positive.” While supply/demand fundamentals and international demand are positive influences on the general producer view, the overall attitude of readers seems to be tempered by the effect of increased input costs and government regulations and oversight, he says.
Looking at the results
The electronic survey was emailed to more than 18,500 readers in early April. A total of 822 completed and useable surveys were returned for an effective response rate of 4.4%. Of respondents, 70% identified themselves as predominantly cow-calf producers, 11.3% as stocker/backgrounders, 8.7% as cattle feeders, 5.9% as seedstock producers, and 2% were allied industry (not directly involved in beef production).
Those surveyed were asked: “Compared to last year, what is your current level of optimism regarding the short-term future (next two years) of the U.S. beef industry?” Among 819 respondents, 57.5% were more optimistic, while 34.6% indicated their level of optimism hadn’t changed. A total of 7.9% were less optimistic.
Of those who reported themselves as being more optimistic (Figure 1), the most cited reasons were the favorable supply/demand fundamentals, increasing international demand and stabilizing domestic demand.
Of those respondents characterizing themselves as less optimistic (Figure 2), the most cited reasons were increased input costs, government regulations and oversight, consumer demand, and availability of feed and forage.
Regarding their level of optimism on the U.S. beef industry’s “long-term future” (five years and beyond), 33.5% said they were more optimistic, while 54.1% said their level of optimism was about the same as last year; 12.5% said they were less optimistic.
Among those “more optimistic” about the long-term (Figure 3), the contributing factors most cited were: supply/demand fundamentals, increasing international demand and stabilizing domestic demand. Among those “less optimistic” about the long-term (Figure 4), the factors most cited were increased input costs, government regulations and oversight, consumer demand and availability of feed and forage.
Among all respondents, 85.7% indicated they are making changes in their management and procurement strategies to reduce input costs.
Regarding the risk-management tools used in their operation last year, respondents were asked to select from a list of practices (Figure 5). Most utilized were forward contracting of inputs (26%), forward contracting of calves (24.8%), futures (16.9%), and options (11.3%). The majority of respondents said they had used none of these tools but listed use of livestock risk protection, niche marketing and branded-beef programs, retained ownership, diversifying their operation, and selling off of mature cows while keeping back heifers.
When asked which risk-management tools they planned to use in 2011-12 (Figure 6), forward contracting of calves led the way (30.9%), followed by forward contracting of inputs ((30%), use of futures (18.6%) and use of options (14.4%). Among respondents 43.4% indicated they used none of those tools.
Readers were also quizzed on the strategies they utilized to decrease feed costs in the short term (Figure 7). Altering forage management was number one (59.1%), followed by putting more pounds on cattle before selling them (36%), and reducing cattle numbers (21.4%). Pooling with others on purchases to secure volume discounts garnered 14.2%, while hedging with futures contracts was 10.7%.
Regarding marketing plans for 2011 calves (Figure 8), 45.6% indicated they intend to market their calves at the same time in 2011 as last year, while 32.8% hadn’t yet decided. However, 13.4% intend to market their calves sooner than last year, and 8.1% later than last year.
Among all respondents, 47.4% said they’d sold calves, feeder cattle or fed cattle during the past 12 months that had been managed for eligibility in value-added markets; 52.6% said they had not. Among those who had marketed such cattle, 76.6% reported receiving a premium for those calves relative to the nearby market the week they sold them.
Among all respondents, 42.6% plan to retain ownership of their 2011 calves post-weaning through the stocker phase; 44.8% do not. Meanwhile, 21.7% of respondents reported plans to retain ownership of their 2011 calves through the feedlot phase, while 65.8% do not.
Of those planning to retain ownership post-weaning, only 10% said the move was a change in their management scheme from the previous year.
Regarding expansion, 40% of all respondents reported increasing their herd size in 2010. Regarding expansion plans for 2011-12 (Figure 9), 43.6% said they would maintain the same herd size as in 2010. However, 32.7% plan to expand by 10% or less, and 8.3% by more than 10%. A total of 9.4% indicated they planned to reduce their herd size by 10% or less, while 5.9% planned to reduce herd size by more than 10%.
Readers were also asked to comment on a number of industry issues. These include:
- Importance of the international beef trade to U.S. cattle prices.
- The impact of biofuels and government policy.
- Consolidation and concentration in feedlot and packing.
- Bioterrorism and domestic terrorism/animal activism.