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Agricultural News


CattleFax Projections Include Decline in Beef Supply, Rising Prices in 2013

Fri, 08 Feb 2013 16:49:27 CST

CattleFax Projections Include Decline in Beef Supply, Rising Prices in 2013      
Cattlemen and women gathered at the 2013 Cattle Industry Convention and National Cattlemen's Beef Association (NCBA) Trade Show to hear CattleFax market analysts' projections for the year ahead. Creighton University Professor Emeritus Art Douglas told the audience that there is a chance some regions of the United States will see a return to more normal precipitation patterns during the upcoming spring and summer growing season. That was welcome news to participants, many of whom have been enduring an ongoing, multi-year drought which has affected more than 70 percent of cattle country.


(Radio Oklahoma Network Farm Director Ron Hays has been at the convention and spoke at length with CattleFax CEO Randy Blach after the presentation. You can listen to their full conversation by clicking on the LISTEN BAR at the bottom of this story.)


If precipitation returns to near-normal levels for the 2013 growing season, CattleFax predicts farmers in the U.S. will plant a record number of acres in both corn and soybeans. CattleFax Grain Market Analyst Chad Spearman told the audience that would lead to lower feed grain prices this year.


"If we see anything close to trend line yields, we'll see relief on the supply side and the result will be price relief, particularly in the second-half of 2013," said Spearman, who added that the additional moisture will help mitigate hay prices after harvest begins this summer.


"With a little help from Mother Nature, we will be in much better shape with regard to hay supply and prices during the second half of the year," he said.


Although input costs may provide relief, analyst Mike Murphy provided a note of caution, saying that a possible economic slowdown could put pressure on beef prices and demand among consumers. He projected that net income in the U.S. would be flat, with incomes struggling to keep pace with inflation. However, he predicted beef exports would continue to provide support for prices.


'We expect to see an increase in exports, due in large part to an increase in shipments to Japan since that market recently opened to beef from cattle under 30 months of age," said Murphy. "Imports will also be up substantially as well, due to tighter supplies in the U.S. at a time when we have strong demand for 90 percent lean trim."


Overall, CattleFax Senior Analyst Kevin Good predicted beef production in the U.S. will fall, with per-capita supply declining 2.2 percent. However, he said the decrease will be partially offset by increasing carcass weights. CattleFax projects the Wholesale Beef Demand Index will decline by 1 percent, due to a 1 percent decline in real income of consumers.


Good said he expects that there will be a shift in leverage with the loss of packing capacity in the U.S. after the closure of a southern Plains packing plant earlier this year.


"As a result of that decline in capacity, feedlots will get a smaller percentage of the wholesale value of beef," said Good. He added that CattleFax is projecting average prices will be higher for all classes of cattle during 2013 compared to the prior year.


Prices are expected to average $126 compared to $123 during 2012, an increase of 2.5 percent. Yearling prices are expected to average $155, an increase of 5 percent from the 2012 average of $147. According to Good, calf prices will average $175, up 5 percent from last year's average of $167.


"The cow-calf sector will remain in the driver's seat during 2013, particularly if they have feed," said Good.


CattleFax CEO Randy Blach summarized the year ahead by saying it will be a difficult year for margin operators in the cattle business. He emphasized the importance of risk management due to continued volatility and rising capital requirements. Packer margins, though, should see some improvement as the result of the decline in capacity, a trend that he expects to continue.


"Don't be surprised if we see the loss of another one or two plants before we're done with the consolidation phase," said Blach. Likewise, he said the industry can expect cattle feeding capacity to continue its decline due to the current market situation.


Speaking with Radio Oklahoma Network's Ron Hays, Blach said the key to stopping the slide is a corn crop.


"We've got to have a corn crop. We're out of plan 'B's. You look at how we've used our available roughage supplies when we had the failure of the corn crop this last year and we've warehoused cattle in all aspects of it. Placements were down 1.3 million head from the later summer and through the fall. We've got to have a corn crop. It's not just us, but pork and poultry. Those industries have to have a corn crop. This has been a devastating drought scenario that we've gone through and it's spilled a tremendous amount of red ink through all of these livestock production segments."


He said the closing of the of the Cargill packing plant in Plainview, Texas, was a natural result of the decreased corn crop and the resulting drop in the number of cattle. The closing in Plainview will may not be the end of it.


"I don't think we can expect that that will be the end of it. Last year the number of fed cattle harvested declined about 900,000 head. That would be equivalent to a plant about the size of Plainview of what they'd harvest on an annual basis.


"We look at what's coming down the road and we're likely to see again close to that kind of reduction over the next couple of years again until we can start to grow this herd back. The likelihood is that we'll see another plant close. We'll likely see some additional non-fed plants that will be shuttered as well."


Plant closures are a natural part of the business cycle we find ourselves in, Blach said. While painful, they do serve a positive function.


"It's just a reflection of the very difficult margin situation they've been in over the last 15 months. That's a natural occurrence when you go through the kind of red ink that's been spilled. So, the closing of the plant will make all of the other existing fed-cattle plants more efficient. They'll gain some leverage back. They'll have a more efficient production system now. That's the necessary step. That's why we end up seeing contracting whether it's in the packing segment of the industry or in the feeding segment of the industry, that's eventually what you'll see is some improved efficiencies."


It will take more than improved efficiencies, however, to turn things around.


"The last six months have been pretty tough-record-high break evens, record-high corn prices and a market that has tended to run into a lot of resistance. We've not been able to push prices through this ceiling up here in order to get prices high enough to cover our production costs. So, if that continues, with this stagnant economy that we're dealing with, the repercussions of that is we could see that spill over into the feeder cattle markets and the calf markets later in the year. So it's pretty important that the feeding industry starts to get back to some profitability at least by the second half of this year. Honestly, I think that's a little bit of a stretch. I think that's a little bit early with where we are in the stage of the cycle."




You can hear the full conversation between Ron Hays and Randy Blach by clicking on the LISTEN BAR below.



   


   

Randy Blach talks with Ron Hays about trends in the beef industry in 2013.
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