Sharpen your management skills to capture profits
These are good times for ranchers. In fact, the market outlook for this year is so good, "I can’t believe what I hear myself saying to cattle producers," says Derrell Peel, Oklahoma State University Extension livestock economist. "We expect record levels of profitability for cow-calf operators."
Peel and other economists always hesitate to project record-high prices or profits, but 2014 is no ordinary year. It’s probably a once-in-a-lifetime opportunity for ranchers. Smaller cattle numbers and lower feed costs are the fundamentals that paint the rosiest cattle outlook in memory.
"The markets are not our biggest worry," Peel says. "Prices are going to be good. Producers must focus on producing as much as possible to sell into this market. They can’t afford any death loss when calves are worth $1,000."
Do all you can. Glynn Tonsor, Kansas State University Extension economist, agrees—now is the time to capitalize on the market. "We’ve seen improvements in forage production and declining grain prices. That translates into improved cow-calf profitability in 2014."
Regarding those profit levels, Tonsor says the Livestock Marketing Information Center data suggest that returns over cash costs will exceed $300 per cow in 2014. "That’s double the returns we saw during the two most profitable in that data set—2004 and 2013," he explains. "Even if we add $100 per cow labor costs, that’s still a good profit."
Such shiny prospects for cow-calf producers, however, are not limited to just this year. Tonsor says he expects "an abnormally profitable environment" for ranchers over the next four or five years.
A bull market is not the time to cut corners on management. Rather, now is the time to minimize health problems and add value to your calves with preconditioning and weaning programs.
Manage for the market. Feeder cattle and calf prices are 25% to 30% higher than this past May. As spring nears, those prices are likely to go higher. Weaned calves were worth $900 to $1,000 per head this past fall, and they could sell for more than that by next fall. Now is not the time to cut corners on production practices.
"Producers must focus on managing their production and managing their costs," Peel says. "They must minimize death loss because those calves are so valuable."
Both Peel and Tonsor encourage cattle producers to maintain animal health programs for cows and calves. "Things that producers can manage, such as animal health programs, are worth even more in this environment," Peel says.
Adding value to calves through preconditioning and weaning programs is essential in today’s market as the risks are higher for buyers.
Stocker operators and feedyards will likely be forced to pay more for replacement animals this year, and with more money on the line, they’ll be searching for ways to minimize their production risks.
Paying higher prices for preconditioned and weaned calves just makes sound business sense for cattle buyers. They are more likely to shy away from the risks associated with calves that have been weaned on the road to the auction market.
Beef demand. While shrinking supplies of cattle and lower feed costs work in favor of cattle producers, many analysts are raising concerns about beef demand and rising retail beef prices. For instance, Darrell Mark, adjunct professor of economics at South Dakota State University, says beef consumption is likely to decline about 5% this year to about 53 lb. per person (retail weight equivalent). In 2015, beef consumption could drop to 52 lb. per person.
Declining beef consumption is a reflection of supplies, not necessarily demand. Still, reduced supplies have already spurred record-high retail prices. From January through October of 2013, the price of all fresh retail beef averaged $4.93 per pound.
"That’s up 5.3% compared to the same time period in 2012," Mark says. "In October, the price of all fresh beef set a new record high at $4.98 per pound. Such higher prices, driven by smaller quantities, have many wondering whether consumers will be willing and able to continuously pay more for beef."
So far, however, consumers have continued to buy beef despite the higher prices. The demand for all fresh beef through the first three quarters of 2013 was about 3% higher than the same period in 2012. That’s based on a demand index that considers both quantities demanded and prices. Further, the National Restaurant Association (NRA) said its Restaurant Performance Index (RPI) rose to a four-month high of 100.9 in October 2013, which indicates a slight expansion in the industry. Dining out, the NRA says, accounts for 40% to 50% of beef sales.
CattleFax President Randy Blach says there are additional facts that support the theory that beef demand remains strong. Consumer income, he says, is up about 4% since 2009, yet retail beef prices are 20% to 30% higher in that time frame. Blach also notes that the U.S. is the world’s largest exporter of protein, with 16 billion pounds of beef, pork and chicken, or 26% of total exports worldwide. He says the export outlook remains strong for 2014 and beyond.
Predicting consumer demand, however, remains difficult, Mark says, because it involves forecasting changing consumer tastes and preferences.
"A number of factors will determine the demand for beef in the year to come, including consumer tastes and preferences, consumer disposable income, prices of competing meats, general economic conditions in the U.S. and around the globe, and foreign exchange rates," Mark says.
Many of those factors have created obstacles for the beef market over the past year. But, Mark says, "given the strength of domestic beef demand at retail and good export market sales in this past year’s challenging market environment, there is reason to be optimistic about beef demand in the year to come."
Plan for success. Smaller supplies, lower feed costs and strong beef demand suggest 2014 could be a banner year "if Mother Nature will cooperate," Blach says. He encourages cow-calf producers to make the most of their opportunities this year and "take pride in ownership of the product," he says.
That reference is to incorporate strategies that add value to your production, such as preconditioning calves or producing cattle for specific branded programs that promote product quality and consistency.
Regardless of how good market prices are, "you better have a risk- management plan," he says.
Still, analysts see the coming year as one with many profit opportunities for cattle producers. Over the next few years, "we have a tremendous opportunity," Blach says.
To contact Greg Henderson, e-mail email@example.com.
- January 2014