Sometimes, picking up a magnifying glass and peering into the future is a good thing. Take the last few years, for instance.
Back in 2010, cattle producers’ short-term optimism, as measured by the annual BEEF Reader Optimism Index (ROI), took a rocket ride from its inaugural 2008 levels. The ROI more than doubled as the picture magnified through the looking glass was one of higher prices and better times. Long-term optimism jumped as well, with factors in the cattle market signaling a long and profitable run — certainly for cow-calf producers and likely for other segments as well.
While the BEEF ROI slipped slightly in 2011 and 2012, it remained well above the magic 100 line, indicating that producers remained very optimistic about both their short- and long-term futures.
Then along comes 2013. According to BEEF magazine’s annual state-of-the-industry survey, the image that readers see this year is a less-than-positive reflection. Long-term optimism dipped to just above 100, and the short-term outlook dipped slightly below the baseline into negative territory.
Just short of 1,000 reader responses (5.3% response rate) were received to the email survey over the April 15-26, 2013, period. In terms of hard numbers, here’s what the survey says: 53% of respondents say, compared with last year, their level of short-term optimism is about the same for the next two years; 25% are less optimistic in the short term; and 21% are more optimistic.
The numbers didn’t change much when respondents were asked about their long-term outlook — five years and beyond — for the U.S. beef industry, although BEEF readers are slightly more optimistic long-term. Overall, 54% say their outlook is about the same as last year, 25% are more optimistic and 21% are less optimistic.
So, while the majority of respondents are even-minded about the future, there are enough cattle producers who are looking through the magnifying glass darkly to cause a dip in the BEEF ROI this year.
Why the sour pickles?
The factors contributing to the downward tilt in the outlook are varied. However, 82% list increased input costs as their top concern in the short term (Figure 1). They’re also concerned about consumer demand (66%). What’s more, 64% are concerned about government regulations and oversight, and 53% are worried about availability of feed and forage.
Long-term concerns (five years and beyond) were similar, with increased input costs cited by 81% of respondents. However, government intrusion into the cattle business rose to second place in the long-term outlook, with 71% of respondents noting that concern. Consumer demand at 55% and availability of feed and forage at 48% were also major long-term concerns (Figure 2).
Not surprisingly, 87% of respondents say they’re making changes in their management and procurement strategies in an attempt to reduce input costs. Only 13% say they’ll stay with the status quo when it comes to their procurement strategies.
However, if the beef industry is anything, it’s a business comprised of optimists. Of those who are more optimistic in the short term, 88% say they like the supply-demand fundamentals that have been at work in the cattle market the past few years. Looking beyond the borders of the U.S., 53% say increasing international demand gives them cause to be optimistic, while 37% listed available feed and forage (Figure 3).
Looking long-term, 84% of respondents think supply-and-demand fundamentals will continue to be major positive factors in the cattle market, followed by increased international demand at 66%, and available feed and forage at 37% (Figure 4).
With increased input costs and availability of feed and forage being top of mind for many respondents, BEEF asked readers their strategies for decreasing feed costs. Altering forage management was first (59%), while 39% have reduced cattle numbers. Another 29% hope to gain a better return by putting more pounds on their cattle before sale (Figure 5).
Whether those tactics are reflected in the timing of when calves come to market this year remains to be seen, however. While 41% say they will market calves in the same time frame as last year, 35% hadn’t made that decision as of April. With drought still keeping much of cattle country in its crackly grip, 15% plan to take calves to town sooner this year, while 9.5% plan to delay marketing (Figure 6).
Despite the drought, or because of it, the supply-demand factors noted above seem to be at play as producers try to match herd size with the hand Mother Nature deals them. Just over 39% of respondents plan to maintain their herd size, while 25% look to expand by 1% to 10% this marketing year. An optimistic 8% of respondents plan to grow their herds by more than 10% (Figure 7).
However, drought is still the X factor this year, particularly in the West North Central (IA, KS, MN, MO, ND, NE and SD) and Mountain (AZ, CO, ID, MT, NM, NV, UT and WY) regions of the country. Overall, 16% of respondents plan to reduce herd size by 1% to 10%, while 12% expect to cut numbers by more than 10%. If that trend holds true for the second half of the year, 2013 could be another liquidation year.
Risk management is important
If liquidation is the case, the tighter numbers will only exacerbate the volatility and velocity of market moves this year and beyond. To deal with that uncertainty, some producers are looking at various risk management alternatives.
“Some,” however, is the operative word. Almost 59% of respondents didn’t use any of the risk management tools last year that were listed in the survey. Of those who did, 23% forwarded-contracted their calves, 16% used the futures market, 16% forward-contracted their inputs and 12% used options (Figure 8).
That trend held true when readers were asked what risk management practices were under consideration for this year, though the numbers ticked up very slightly. Overall, 52.5% say they won’t use any of the listed risk management tools this year. For those who will, 25% say they’ll forward-contract their calves, 21% will offset risk by forward-contracting inputs, 19% plan to use futures and 15% will try options (Figure 9).
In addition to asking readers about operational plans, BEEF asked their opinions on several current industry issues.
Overall, 43% of respondents say drought is an immediate issue and is affecting their short-term outlook and management. Looking at a regional breakdown of respondents, 67% of those from the West South Central (AR, LA, OK and TX) region of the U.S., 54% of those from the Mountain States, and 45% of those from the West North Central states say drought is a major factor in their management plans. What’s more, 37% of all respondents say drought is a factor, but they have some latitude, in that it’s not having a significant effect on their short- or long-term outlook. And 20% say drought isn’t a factor this year on their operations.
Earlier this year, USDA released its revised animal disease traceability program. According to BEEF readers, 47% aren’t thrilled with the program, but say it’s better than nothing. Ten percent hate it, 6% love it and 38% say they don’t know much about the program (Figure 10).
Industry consolidation and concentration has long been a concern to many. When asked to rank their level of concern on a scale of 1 to 5, 43% came in at a 3, indicating they are somewhat concerned; 10% checked a 2; and 12% checked a 1, indicating they are not concerned. However, 15% notched a 4, and 19% marked a 5, which indicates it’s a major concern to them.
BEEF asked readers how concerned they are about feedlots and packers exiting the business and reducing marketing opportunities for their cattle. Overall, 39% were somewhat concerned, clicking on No. 3, while 24% notched No. 4, and 31% hit No. 5, indicating major concern. Only 3.2% indicated a 1, which is not concerned at all, and 2.4% hit No. 2.
With social and political activism seemingly on the upswing, 39% of respondents reported being more concerned about domestic terrorism and animal rights terrorists than they were last year. However, 58% said their level of concern is similar to last year, and 3% said they are less concerned.
- On the other side of that equation is the need for individual producers to speak up and let their elected officials know their thoughts and concerns. A slight majority of respondents, at 54%, say they have made contact with state or federal elected officials last year. On the other hand, 46% indicate they didn’t share their concerns directly with their elected officials.
Perhaps that’s a reflection of producers’ general outlook on larger social and political trends in the U.S. A strong majority (64%) answered “no” when asked if they felt the U.S. is headed in the right direction. Another 19% don’t know, and 17% said “yes” (Figure 11).
Is the dip in the BEEF ROI just a one-year anomaly as producers react to ongoing drought and an uncertain market? Only time and Mother Nature can answer that question. But, this year’s dip in optimism aside, beef producers are a resilient lot. BEEF readers have weathered drought and crazy markets before, and they’ll no doubt emerge from this round battered and bruised, but standing tall.
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