Record cattle prices set the stage for expansion

Most cattle producers are optimistic about the current cattle market. With record-high prices, anyone would be, especially since prices are expected to continue to climb.

So how long will cattle prices maintain their upward momentum? The analysts at Pro Farmer expect the cycle to post its high in 2013.

"In the meantime, drought in the Plains, still-high feed costs and high cash prices give producers little to no encouragement to hold heifers back," explains Julianne Johnston, senior market analyst at Pro Farmer. "Simply put, it will take rain in the Plains to encourage heifer retention, which will propel the market into its 2013 cycle high."

For cow–calf and stocker operators, higher calf and feeder prices are good news. The challenge for stocker operators, however, is keeping break-evens in check given the higher prices for calves.

Jerry White, a 1,500-head stocker operator outside of Chickasha, Okla., expects next year to be another good year. He anticipates tighter margins due to higher calf prices, which in turn will increase break-even levels. But he believes feeder prices will keep up.

"This year was a good year in spite of the drought, due to higher feeder cattle prices," he says.

Once the drought hit, White harvested his corn for silage, giving him one more feed source. Fall moisture helped winter wheat pastures and provided good grazing conditions in mid-December.

Even though strong feeder prices are likely to continue in the months ahead, don’t be surprised by typical seasonal dips. David Anderson, Texas AgriLife Extension livestock economist, projects these target prices for 600-lb. steers in 2012: first quarter, $131 to $138 per cwt.; second quarter, $136 to $144 per cwt.; third quarter, $137 to $147 per cwt.; fourth quarter, $133 to $144 per cwt.

But the higher fed prices could cause consumers to balk at the meat case, especially if poultry and pork continue to be competitive. Ed Greiman, a cow–calf and feedlot producer in Garner, Iowa, says he’s a little worried that fed prices above $1.20 cwt. might slow down the beef movement.

The driver is fewer cows. When the factory shrinks, so does production. Even though improved genetics means that it takes fewer animals to produce the same amount of beef, Anderson says, beef production in 2012 is predicted to be down 4%.

The extreme drought in the Southern Plains has halted expansion plans in the key parts of cow country. Texas lost approximately 600,000 head and Oklahoma lost about 250,000 head due to the drought, according to economists at Texas AgriLife Extension and Oklahoma State University. That’s a 12% decrease, the second largest percentage decline in history.

Derrell Peel, Oklahoma State University livestock economist, says that a continuing drought in 2012 means culling will begin much sooner than last year. For instance, the drought peaked in the summer, when hay supplies diminished. That’s when large numbers of cattle went to market or feedyards, he says. This spring, since hay is already in tight supply, culling might start earlier.

The other factor to watch is moisture timing. For example, winter wheat pastures in Oklahoma were all but written off a few months ago. Now, some farmers and ranchers tell Peel that this is the best wheat pasture for grazing they’ve seen in a long time, thanks to a few inches of rain this fall.

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