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Beef industry about to make a slow turn

July 22, 2013

By Debra Levey Larson
Media/Communications Specialist, University of Illinois College of Agricultural, Consumer and Environmental Sciences

URBANA, Ill. — The number of beef animals has been in a downward spiral since 2007 as a result of drought, which has ravaged pastures, and because of high prices of corn, soybean meal and forages. Although expansion is expected to start slowly, the beef industry is about to reverse a downward trend in numbers. According to a Purdue University Extension economist, prospects are brightening for a renewal of pastures and for a welcomed reduction in feed prices.

Pastures and ranges have returned to favorable conditions for much of the country, including the Northeast, the Southeast, the Midwest and the Northern Great Plains,” said Chris Hurt. “Improvement is also noted for the Central and Southern plains, although drought conditions are still lingering. Texas, Oklahoma and Kansas have received some recent rains that may help to continue the abatement of drought. Nationally, 73 percent of pastures are rated in the fair, good or excellent condition this year compared to only 46 percent at this time last year.

Markets are expecting feed prices to drop sharply when new crop harvest gets under way. New crop corn prices are about $2 per bushel lower than nearby bids, and fall soybean meal prices could be as much as $200 per ton lower than current scarce old-crop offers,” Hurt said.

Hurt said beef cow operations in some parts of the country where pastures have been restored are probably getting ready to retain heifers. Beef cow numbers have declined in the Southeast by about 700,000 head, or 12 percent, since 2007. Midwest numbers have dropped by 680,000 head, or 14 percent, since 2007. Both of these areas should have the pasture and the feed to begin heifer retention. The Northern Plains is another area that is ripe for herd expansion.

On the other hand, pasture and range recovery have not reached a critical mass for expansion in the Central and Southern plains and western United States,” Hurt said. “These regions include 43 percent of the beef cows and have had a 14 percent drop in those numbers since 2007. More rain and more improvement in pastures and ranges will be required.”

According to Hurt, the initial retention of heifers will likely occur this fall in areas primarily east of the Mississippi River, plus the Delta, the western Corn Belt, and the northern Great Plains. This is a large area that currently has 57 percent of the nation’s beef cows.

Lower feed prices alone will not be enough to get retention started, but higher calf prices will be required as well,” Hurt said. “That process is also under way. Oklahoma 500- to 550-pound calves have increased by about 15 cents per pound since early June, and 600- to 650-pound steer calves have increased by 13 cents per pound. Current prices are $1.65 and $1.55 per pound, respectively.”

However, Hurt added, these levels are not likely to stimulate any major beef cow herd expansion. It is more likely that prices of $1.75 to $2 may be required to convince brood cow operations to move aggressively toward more cows.

The already low inventory of finished cattle and some added heifer retention will keep beef supplies falling in the coming 12 months,” Hurt said. “USDA expects beef production to be down about 4 percent in the last half of 2013 and by 5 percent in the first half of 2014. This should provide the foundation for finished beef prices to average in the higher $120s to low $130s. These finished cattle prices, along with lower feed prices, should propel calf prices back to $1.75 per pound and higher.”

Finished cattle prices are expected to trade in the low $120s per hundredweight in the third quarter but move to the higher $120s for the final quarter of 2013. First half 2014 prices are expected to average near $130, with early spring highs in the low to mid-$130s. Calf and feeder cattle prices should follow the finished cattle prices higher, especially as feed prices also drop.

The industry may see the start of heifer retention this fall, but the magnitude of expansion is expected to be low and slow to get under way,” Hurt said. “Beef cow producers know that expansion of the herd is a long-term investment and generally want an extended period of favorable returns before making major financial commitments. In addition, nearly half of the country’s cows are in regions that have not yet fully emerged from the drought.”

Hurt said prices of calves may need to move closer to $2 per pound to provide the incentive that will provide for a more major beef expansion.

Both the poultry and pork industries are set to increase production rapidly as feed prices decline,” Hurt said. “Retail beef prices, already at record highs, will move even higher in the coming 12 months — at a time when poultry and pork price increases are moderating or even falling. This will mean stiff competition for beef among domestic and foreign consumers.”

Posted July 22, 2013

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