Editor's Note: AgWeb.com is taking a look at experts’ projections for a variety of commodities in 2013. See the full list of outlooks.
The difference between selling 550 lb. steers at the peak and the bottom of the 2012 market was a remarkable $286 per head. It was, of course, the weather this time—too little grass, too little corn. Nobody knows yet what will happen in 2013, but here are five areas to keep your eye on.
1. Weather. The National Oceanic and Atmospheric Administration assumes "normal" weather next year, with a few rainy pockets in parts of the country. Not long ago, it was looking for El Niño to deliver lots of moisture to the most important grass and corn areas. A third year of drought is the last thing cow–calf folks can afford. The direct impacts are bad enough. Ranchers have to sell cows—suppressing prices—and calves come off early and small, reducing their gross value. But the indirect costs of high-priced hay, supplements and corn are just as bad.
2. Demand. Beef demand has been resilient despite high prices, but the economy—in the U.S. and the world—is in a precarious state. Most of the developed countries have been borrowing from the future, and if they get serious about tightening their belts, we could be in for more recession. With it would come lower demand for all foods, especially beef.
3. Competing meats. The bland meats—pork and poultry—have had a harder time than beef in passing along the added costs from the corn market. Producers have begun scaling back output, but consumers have seen their relative costs for broiler parts and pork chops increase less than beef. As production is reduced, they should lose some of their bargain appeal. USDA-ERS retail meat price chart.
4. Carcass size. For years, one could assume that higher corn prices meant smaller carcasses. But as feeders and packers have struggled to keep their volume and tonnage up, they’ve opted to make cattle bigger. Will this trend continue—especially if corn gets cheaper, making extra pounds more affordable?
5. The dollar. The dollar has its own volatility-risk factor, and foreign customers—who buy offal as well as an increasing percentage of beef—figure their prices on their own currency. The dollar’s strength combined with overseas recession hurt export demand this year, but much depends on how Washington decides to deal with the ongoing budget challenge.
Keep on Holding on
With cattle numbers at historic lows, the difference between dry and not-so-dry will be huge. Timely rains in cow country would likely to tempt some to rebuild herds, further reducing the already tight supply of beef. Presumably, such rains would also weaken the feed markets—reducing costs for wintering cows and offering feedlots some breathing room on corn prices.
You don’t always have the option, but holding calves longer typically pays more. Feed conversions and costs vary, but estimates by the Michigan State University Beef Team in the bulletin "What Can I Afford to Pay for Feeder Cattle during 2012–2013?", give an idea of how complicated the outlook is. Assuming a $1.20 fed cattle price and $7.50 for corn, your buyer could afford to pay you $792 for a 550-lb. calf or a neat $1,000 for the same steer at 800 lb. That is a 83¢ per pound value on your gain, or more if you add in the traditional spring price rise. Plus, since your buyer is a cattle feeder and pen space is abundant, he will pay you a little more than those prices. Always has, always will. But then again, the longer you own them, the more risk you run of having one of the five risk factors going sour.