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Beef's New Horizon

January 10, 2009
By: Sara Brown, Farm Journal Livestock and Production Editor
 
 
Current low prices for feeder calves and fed calves is Brett DeBruycker's top concern for the new year, but he is encouraged by the recent progress in exporting U.S. beef products to new markets. The Dutton, Mont., rancher is focused on providing high-quality purebred breeding stock and yearling animals.


The eastern horizon always brings a new day. Cattle producers are keeping that in mind as they learn to cope in the current market environment, says Gregg Doud, chief economist for the National Cattlemen's Beef Association (NCBA).

"Grain farmers are used to seeing how world demand and export markets impact their prices at home. The cattle market now has the same global marketplace concerns as corn, soybeans and wheat," Doud says.

Doud says that smaller supplies will occur across the board for meat and poultry in the early part of 2009. The rising value of the U.S. dollar has also impacted meat exports.

"Brazil, Russia, India and China have some of the fastest-growing economies. When Russia had $140 per barrel oil, their economy surged. That coincided with when Russia was the world's largest beef importer [January through September 2008]. Now, however, their economy is hurting as oil prices plunge and their stock market suffers," Doud says.

"When that happened, Russia began rejecting imports of all meats, including beef, and that quickly affected U.S. cattle prices. Critical questions remain in regard to Russia's and China's economies and how that will impact all meat exports.
"If they pull through this, it will be a positive signal for the entire meat complex," Doud says.

The challenges of 2008 are still on producers' minds. High feed costs, government regulations and lower market prices have producers scratching their head, wondering what to do.

John Lawrence, Iowa State University Extension beef economist, says producers will need time to adjust to the changes of 2008. "Higher grain prices are driving up land prices and feed costs for cowherds. Feedlots have experienced unprecedented market volatility. This uncertainty is causing business paralysis for some people."

While all cattle producers will monitor market prices, export sales and feed, there are specific differences each producer will face in 2009 and beyond.

Family diversity. Farmer-rancher Brett DeBruycker in Dutton, Mont., has a unique perspective on the relationship between cattle and crops. His family's operation consists of his parents, four of his siblings and their families, and his own family. They own the country's largest purebred Charolais operation, with more than 2,000 cows, along with a yearling operation and feedyard with 8,500-head capacity and also grow wheat and barley.

"Historically, when the farming business works, the cattle business doesn't. But that demonstrates the need to be diversified," says DeBruycker, who also serves as president of the Montana Cattlemen's Association.

"Our No. 1 goal is to have each operation be able to stand alone in the marketplace and be profitable," he adds. The crop enterprise aims to produce the highest-quality grain for specialty markets, while the Charolais cattle produce top-quality breeding stock and the yearling/feedlot operation looks for high-production cattle.

DeBruycker's top concerns are the lower prices cow–calf producers are receiving for calves and the lower prices his operation is receiving for fat cattle.

"We're seeing consolidation in every aspect of the beef industry and economy," DeBruycker explains. "Whether it's livestock markets or the economy, competition is the most important aspect. It's important for commodity values at every level."

In addition to production challenges, DeBruycker is ready for a change in attitude of both consumers and producers. "It's very easy to grab sound bites in our industry and take it as gospel. We need to get the facts of any issue out in the front. People should be more demanding of the truth."

In the long-term, DeBruycker says, he sees good things in store. "In the industry as a whole, our cattle numbers are down, and other countries are realizing the good beef products the U.S. can provide. I look forward to the future. We will always have challenges—today it's the economy, tomorrow it will be something else. But these are exciting times."

Wind of change. Due to the sand-tolerant grasses and the wetland ecosystem, the Nebraska Sand- hills is one of the world's most productive areas for raising cattle. Smith Angus Ranch, owned by Kent and Faye Smith, their two sons, Cameron and Trevor, and Trevor's wife, Amber, is located 25 miles southeast of Bassett, Neb. The ranch consists of 15,000 owned and leased acres in Rock and Loup Counties.

For many years, the Smith family has raised high-quality commercial feeder cattle. In 1988, Kent and Faye purchased an entire herd of registered Angus cows. The Smiths market more than 120 yearling and fall yearling bulls in their annual sale and sell about 50 replacement heifers each year. About 500 cows are run in the spring and fall herds.

The Smiths' AI program synchronizes cows for a calving season in the spring, starting in mid-March, and in the fall, starting the first of August. Previously, the Smiths' herd calved in January, but calving dates were moved back due to extreme winter weather, which took its toll on the livestock and made calving too labor-intensive.

Understanding the need to diversify, Kent and Trevor purchase about 800 yearlings each spring to stock summer pastures. The calves are bought in the spring, run on grass in the hills in the summer and are marketed at Bassett Livestock Auction in the fall, depending on rainfall and grass supply.

Currently, producers in north-central Nebraska are most concerned about the economy and the rapidly dropping cattle market, Kent says.

Russia and China will be key indicators of a worldwide economic rebound, says Gregg Doud, National Cattlemen's Beef Association's chief economist.

Bassett Livestock Auction is widely known as one of the leading barns in the country to market yearling cattle. In July 2007, 700-lb. steers were bringing around $130 per cwt. In December of 2008, 700-lb. steers dropped to an average of $100 per cwt. Similarly, weigh cows were averaging $55 per cwt. in 2007 and are currently down to $30 per cwt. to $35 per cwt.

"Cutting costs of production is crucial in keeping your operation afloat," Kent says. The family is cutting costs in several ways, he adds. They are sub-stituting ethanol products for higher-priced corn and protein supplements, which has reduced feeding costs by close to $200 per ton.

Fuel cost has also been a drain on their operation. The Smiths went from using mowers, rakes, sweeps and a stacker to using a windrower, a 14-wheel V-rake and a baler to put up their hay. While this has cut their labor and fuel costs, it has also increased the quality of hay and feeding ease.

"The best-case scenario would be to let the cows harvest the grass," Kent says. Even though Nebraska winters can be harsh, the Smiths try to graze cows as long as possible during winter months.

Fertilizing hay meadows for the past few years has paid off. "With the adequate moisture that we have recently received, this has made a big difference in the amount and quality of hay harvested," Kent adds.

For many years, the windmill has been a mainstay of the Nebraska countryside, but times are changing, Kent says. "No matter how windy Nebraska is known to be, some days it just isn't reliable enough to supply adequate water for livestock."

The majority of the Smiths' land is now equipped with an underground pipeline to supply water necessary to use an intense rotational grazing system, which improves the quality of the pastures and eliminates overgrazing.

In the next few months, the Smiths will be deciding if and when to purchase cattle for the 2009 summer pasture season. They will be closely analyzing the market, trying to take advantage of lower prices. On the other hand, if purchasing cattle doesn't pencil out, they can also take in cattle and let someone else stand the risk of an uncertain market.

Weather and permits. "Like most ranchers, I'm an eternal optimist," says Andy Groseta, president of NCBA and a third-generation rancher on W Dart Ranch near Cottonwood, Ariz. "Short-term, the market is going to be soft because of the economy in the U.S. and around the world. People are being more conservative with spending and may cut back on meat purchases.

"But I'm very optimistic about the long-term potential of the cattle business, especially when you consider 96% of the world population lives outside the U.S," he says.

"More of the world population is moving above poverty levels, and as that happens, populations move from a grain-based diet to an animal-based diet. There is a tremendous demand opportunity worldwide to continue to grow exports. That has been my No. 1 priority as NCBA president," he adds.

Arizona is always short on water, Groseta says. A wet winter last year and good moisture in July, August and September was a welcome relief to ranchers in his area. He adds that another year of substantial snow and rainfall is needed to replenish stock water and grow more grass.

Producers in his area are also concerned about government regulations and the incoming presidential administration. "For Western producers, there are concerns regarding more environmental regulations. We run 400 head of cattle on 40 sections that include forest service, state trust and private lands. So the environmental and public land issues impact us personally," Groseta says.

There are great opportunities ahead, says Andy Groseta, National Cattlemen's Beef Association president.
Intensive grazing is one option to reduce costs, says Dick Daugherty, who runs stockers in Louisville, Tenn.

Try something new. Dick Daugherty of Louisville, Tenn., says the current beef outlook depresses him but he is trying some new things to improve his profit potential.

President of the Tennessee Cattlemen's Association, Daugherty runs stockers. In mid-December, he sent a truckload to an Iowa feeder, retaining ownership. He hopes that will give him a shot at better prices for fed cattle in the spring. He'll send another load of retained ownership calves in February. He hasn't yet committed to a plan for his third and final load.

"This year, there's more uncertainty than ever. We have high input prices and now depressed prices from the demand side because of the economic situation. There isn't as much demand for high-end cuts of beef. Thank goodness Americans love hamburger. Also, the stronger dollar has had a negative effect on exports," Daugherty says.

He paid $1.17 per pound for the first load of steers sent to the Iowa feeder. By mid-December, the price had dropped to 85¢ per pound.

"I bought them eyeing the April finished market. I'm betting it'll be better than 85¢ by April," he says.

Southeastern beef producers are also working hard to survive with higher fertilizer prices, he says.

"They're adjusting the number of cattle to what they can run on pasture without fertilizer. We're going to try some new things with that ourselves. We're going to further subdivide pastures and get into intensive grazing to try to carry more cattle without fertilizer.

We'll put a whole lot of cattle in a small area and move them frequently. It helps weed control and manure distribution and increases the number of cattle we can carry. It requires more management, but we'll just play it by ear," says Daugherty, who runs cattle with his son, Andy.

Many Southeastern beef operations were hammered hard by the 2007 drought and still struggle because of it.

"The average guy is hunkered down and weathering it the best he can. He's cutting where he can. For people around here, there's not much alternative to beef. None of my farm would be useful for cropping. Here in east Tennessee, we've got to run grass through cows to make anything on these hills. And they've got to be finished with corn to be suitable for consumers," Daugherty says.

Pen by pen. There is a two-week waiting list to fill pens at Barton County Feeders near Ellinwood, Kan. That may be usual for this time of the year, but 2008 was nowhere near a normal operating cycle year.

"We had a 15% drop in business until October," says Cap Proffitt, minority partner and manager of the yards. "Up to that point, owners would look at a loss to feed cattle. Then, crop prices dropped and the option to finish cattle looked to be an alternative again.

"We are full now, but I don't think that will be normal when spring rolls around," he says. "It will be harder to keep pens full and it will be harder to find cattle to feed because of the declining number of feeder cattle."

In the 20 years Proffitt has been with Barton County Feeders, he says this has been one of the most abnormal years yet. "There has never been a time that I've had a longer list of things that concern me," he says.

At the forefront is the increased pressure from environment and animal rights groups.

"Given the next administration, I have great concern they are not as aware of the importance of efficient agriculture. Increased regulations could increase the cost of production and the cost of food if the agenda of some special interest groups prevail."

To better serve its customers, Proffitt says the yard has worked on several fronts to pass on added value.

"We have made a big effort toward the value-added programs for cattle in our yards. A year ago, we received a natural certification and a Non-Hormone Treated Cattle (NHTC) certification by USDA."

NHTC qualified cattle are often destined for European markets, as they meet those trade requirements. Barton County Feeders also participates in age- and source-verified programs for markets in southeast Asia and Japan.

Proffitt says that niche markets and value-added programs may flatten a bit as consumers struggle to balance food decisions, but he is convinced the market for those products is international. "Global demand for our products will continue to increase. Maybe not right away, but as other countries' economies get a taste for beef, long-term the demand for value-added programs will grow," he says.

A medium-sized yard, Barton County Feeders has also looked for ways to be more competitive. When the oil business took off in Kansas this past year, Proffitt lost three key people in the yard to higher-paying jobs. "We were very fortunate in the people we employ that we could move some people up and continue to provide quality service to our customers."

Labor isn't the only challenge. As grain prices soared in 2008, Proffitt had tough choices ahead. "When the grain market took off, I said we have to come up with a more cost-effective way to feed cattle. We turned to distillers' grains and had to learn a whole new feedstock, and we did it. It's been challenging, but it's also been good for us."

In the Ellinwood area, high land values made it difficult for Proffitt to find places to dispose of the feedyard's solid waste. Luckily, he says, the fertilizer market flew higher, so more crop farmers became interested in animal fertilizer and have learned its positive values.

Even with those opportunities, Proffitt says, it is difficult for him to compete in this market. Barton County Feeders works with 10 other independent feedyards in Kansas and Nebraska in a marketing cooperative, Beef Marketing Group, to increase competitiveness with larger yards.

"We are just trying to stay competitive and add value for our customers," Proffitt says. "When challenges come, it mandates being innovative. The resilience of agriculture is always there." 

You can e-mail Sara Brown at sbrown@farmjournal.com.



Beef Today Editor Emeritus Steve
Cornett, offers
his perspective.
The Micro and the Macro

Talk about a lot of moving parts. Trying to plan for the coming year is a bit like trying to figure out where a kaleidoscope is going next.

A year ago, beef industry analysts predicted that 2008 would be a challenge. They knew the general economy was weakening and that it would impact beef demand. They knew there would be record amounts of meat on the market.

But if anybody predicted just how remarkably remarkable 2008's economy would be, they kept it to themselves.

A year ago, "the funds" were keeping futures high. Foreign demand and a weak dollar were building export demand and hide and offal prices. The bugaboos of the moment were high energy and grain prices, exploding land prices and a possible "speed bump" in the economy.

Sure enough, all of those hurt, only more so than most people imagined. And then came September 2008. The world's economy just popped, dragging energy, grain prices and beef demand floorward and sending the funds scrambling for safety.

Cattlemen's result. By the reckoning of the Livestock Marketing Information Center (LMIC), cattle feeders experienced their worst year ever in 2008 and calf producers fared worse than anytime in the past 10 years.

And the outlook for the next year, as they prepared to celebrate the end of 2008, was even worse. LMIC says cattle fed last year in unhedged programs lost an average of $120 per head—and that was before the market and futures fell into the mid-$80s cwt. and before what looked like a pending rally in feed prices.

They are doing their best to push their losses back to the feeder cattle they buy, and without the hedge funds to keep fed futures unrealistically high, nobody seems bullish on feeder calf prices.

But Andy Groseta has it right in the main article. That's all short-term stuff. Left alone, the long-term future for the U.S. beef industry should be bright. The economy will recover, and when it does, the global market and all those hungry billions will still be there.
The bigger threat to the long-term success of the beef industry might lie outside the factors that have historically driven futures and fortunes.

The growing influence of the animal rights movement is a serious threat—at least to the production practices upon which the modern industry is built.

But it may not be the most immediate threat. The Michael Pollan movement may hit cattle producers sooner. Pollan, a University of California–Berkeley professor and "food activist," worries that the model behind U.S. cattle production consumes too much energy, produces too many greenhouse gases and provides too much cheap beef, contributing to "the obesity crisis" and escalating health costs.

The future prosperity of the cattle industry may depend as much on the success he has selling that idea as it does on grain and energy prices.

But that's the future. In the meantime, notice in the main story that Cap Proffitt says Barton County Feeders' feedyard is full, despite hard times. Or take into account the large Texas cattle feeder that I know, who took advantage of the hedge funds' optimism last year to not only keep his yards full but also to enjoy the most profitable year he's ever had.

It's not the "state of the industry" an individual operator needs to worry about. It's his or her own program. —Written by Steve Cornett

 

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FEATURED IN: Farm Journal - January 2009
RELATED TOPICS: Beef, Livestock, Cattle

 
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