Editor's note: This is one of seven 2014 marketing outlooks, the AgWeb.com editors are providing to help you succeed and be profitable in the coming year. Please check back each Monday for another outlook.
All-time cattle price records fell like Congressional approval ratings this fall. Can the trend continue in 2014? You bet, say market analysts.
Just like the perfect storm that derailed cattle markets in 2008 and 2009, the fundamentals are shaping up to deliver a profitable and possibly record-breaking 2014. Indeed, the clouds around the cattle and beef sectors appear to be made of silver linings this year, with the only question mark lingering over consumer demand.
The primary factor driving improved profitability for cattle producers is lower grain prices, specifically lower corn prices. It’s no coincidence that as corn prices declined to 3-year-lows this fall, cattle prices experienced an unprecedented rally. Stocker and feeder cattle posted 25 percent to 30 percent price gains since May, boosting the feeder cattle index price for 750-pound steers to more than $165 per cwt.
Falling corn prices also provided a much-needed boost for feedlot operators. After two years of negative margins, cattle feeders began printing closeouts with black ink again this fall. According to Sterling Marketing, Inc., Vale, Ore., feedyards saw average profits of nearly $123 per head for cattle sold the first week in November.
That’s a dramatic turnaround from the $32 per head they were losing on cattle last year. Sterling Marketing president John Nalivka says average feed costs per head were $172 lower in November, 2013 compared to the same month in 2012.
Although some parts of cattle country remain locked in drought conditions, most cattle producers saw vastly improved weather conditions during 2013. Rainfall totals closer to regional averages produced much needed hay and forage which further reduced cattle production costs.
Looking ahead to 2014, analysts point to declining supplies of cattle and beef as the foundation of a strong market. The Jan.1, 2013 inventory of beef cows was the lowest in 60 years, and every number cruncher in the business says cow inventories will be smaller again come Jan. 1, 2014. That will be the eighth consecutive year of declining cow numbers, and it guarantees fewer feeder cattle and calves next year.
Feedyards and stocker operators will aggressively seek cattle in all weight ranges next year, which is supportive of calf and feeder cattle prices. With calf and yearling prices already at record-high levels, the suggestion from analysts is that new records could be set next year.
Lower grain prices and tight cattle supplies already add up to a rosy outlook, but analysts always like to find a little more support for a bull market. That’s why they point to robust beef exports.
The U.S. Meat Export Federation (USMEF) says that through the first eight months of 2013, beef exports are up 1 percent in volume and 10 percent in value to 767,017 metric tons valued at $4.01 billion. USMEF says the export value per head of fed slaughter for beef in August averaged $253.87, up $46.16 from last year. Demand for American beef is expected to remain strong in foreign markets next year.
Can anything derail a booming cattle market in 2014? Absolutely. Analysts are nervous about ever-increasing retail beef prices and the effect on consumer demand. Average retail beef prices in August 2013, the latest data available, was a record $5.39 per pound, surpassing July’s mark of $5.36, according to the USDA’s Economic Research Service.