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Shadows Amid the Sunshine

02:08AM Apr 02, 2014

Livestock sectors struggle despite high-profit opportunities

After years of record-high grain prices, feed costs have retreated. That, along with tight supplies due to prolonged drought, have coaxed market fundamentals to turn around. This is the year when forecasts indicated profitable levels would return for the cattle, pork and poultry industries. 

But challenges prevail. "We all have these awesome margins, and for one reason or another, we’re having a difficult time expanding herds and utilizing these great economics," says Roger Wallace, market analyst and Nebraska producer. 

In early 2014, the U.S. beef cattle herd reached its lowest numbers since 1951, says Chris Hurt, Purdue University Extension ag economist. Retaining heifers to replace breeding cows is expensive. Drought conditions still grip large areas of cattle country, he adds.

Another big obstacle is cash flow. Beef producers have long struggled with narrow margins, so it will take a period of profitability to restore their confidence. 

"Some cow–calf operations will see 2014 as the golden opportunity to get out with record-high prices," Hurt says. "But the greater tendency will be for produ­cers to hold on to cows for the profitable opportunities that are expected over the next three or more years."

The White Meats.
Poised for growth, the pork sector eagerly awaited lower feed prices. Now, expansion has been halted or curbed thanks to the porcine epidemic diarrhea virus (PEDV). Confirmed in the U.S. on May 17, 2013, in Ohio, it has since spread to at least 24 other states, as well as Mexico, Peru and Canada, explains Liz Wagstrom, chief veterinarian with the National Pork Producers Council.

While the virus doesn’t pose any risk to human health, Wagstrom says it is a serious problem. "We may be up to 4 million head of pigs that have died from it," she says, noting that estimates are still rough. 

PEDV can cause a 100% mortality rate in pigs up to 4 weeks of age plus diarrhea and vomiting in older animals, which reduces growth and reproduction. "The entire pig population is at risk," she says. 

Cold weather plagued the majority of the country this year, and record-low temper­atures and snowfall even hit the Deep South. Georgia, Arkansas and Alabama lead the country in poultry production and were among 31 states hit with tight propane supplies in January and February, according to the National Chicken Council. 

In those areas, the price of a gallon of propane doubled in less than a week. Such price spikes tightened margins and could reduce poultry production. "We were seeing a steady expansion of egg production and chick placements," Wallace says. "But that has slowed."

For all three sectors, the time it takes to increase production is an obstacle. For example, Wallace says, if ranchers expanded the beef herd in first-quarter 2014, you would see more beef in June 2016. The pork cycle could crank up production by early 2015. Broiler production can increase in a few months. 

Even with challenges, Wallace says, profit possibilities look promising, and livestock producers will respond accordingly. Hurt agrees. "The price outlook is extremely favorable for 2014 to 2016 for the beef industry. The rebuilding of the beef herd is expected to take multiple years."