Source: Livestock Marketing Information Center
Moisture conditions have resulted in two U.S. cow-calf sectors this year, producers with and those without forage. Nationwide, about 25% of the beef cowherd has suffered from debilitating drought this year. Producers outside the drought regions will post strong returns this year due to record high cattle prices. If Mother Nature cooperates in 2012, on a per cow basis, cow-calf operations will post their highest nominal return over cash production costs ever.
Since the early 1970s the Livestock Marketing Information Center (LMIC) has estimated cow-calf returns over cash costs plus pasture rent based on typical production and marketing practices in the Southern Plains. The estimated numbers are designed for market analysis, thus actual cow-calf returns will vary considerably, especially in drought years like this year. For 2011, as calculated by the LMIC, most non-drought impacted cow-calf operations will cover their cash production costs plus they will have significant money available for their fixed costs (management, operator labor, etc.). In fact, the estimated LMIC return will be about $90.00 per cow, the highest since 2005.
Over time, estimated cow-calf returns have varied dramatically. The most recent negative return year was 2009 (-$31.00 per cow). Years of positive and negative returns tend to be in clusters. In the last 37 years of LMIC estimates, 14 years or 38% had negative returns, with only five of those years posting losses greater than $75 per cow (1975,1976, 1983, 1984, and 1996).Over that same timeframe, seven years had estimated positive returns of over $75.00 per cow (1987, 1990, 1991, 2003, 2004, 2005, and 2011).
Looking ahead, estimated cow-calf returns in 2012 should at least match 2005's record (about $150.00 per cow). Preliminary forecasts for 2013 suggest returns will set a new record high (exceeding $160.00 per cow), because the up trend in calf and cull animal sale prices are forecasted to out-pace production cost increases.
In the Midwest and some areas of the U.S. not impacted by drought this year, those returns may not be large enough to preclude mixed farming and cow operations from reducing their herds. Those declines will be the result of record high grain prices. Cow-calf operations that cannot switch their pastures to crops or other uses (hunting, etc.) will have economic incentives to increase their cowherds. As of January 1, 2012, the USDA-NASS annual Cattle report will show year-on-year cowherd declines in drought ravaged states (e.g. Texas and Oklahoma). Beef cow numbers will likely increase compared to a year ago in the Northern Plains, Pacific Northwest, and some other states. Overall, the U.S. beef cowherd will be below a year ago as of January 1, 2012.