Markets Analysis- Demand for Quality Beef as Supplies Remain Short17 January 2013
US -Record-high calf prices don't necessarily mean record-high profits in the beef business, writes Scott Brown.
University of Missouri livestock economist,Scott Brown said rising feed costs will cut into cattle profits.
"Cattle producers should hope for a big corn acreage this spring, with rain in June and July. Also, hope for continued recovery in the general economy," Mr Brown told Dallas County cattle producers. "As more people get jobs, that creates more demand for beef."
To show the difficulty for an economist to predict prices, Mr Brown reminded listeners of 2012. "Remember, as late as May last year, USDA was predicting corn prices at $4.60 per bushel. Recently corn was at $7.40 per bushel."
A drought-reduced corn yield and high corn prices in 2012 make it difficult for cattle feeders to make money.
In 2013, just hope for that big corn crop, Mr Brown said. That could mean corn prices drop toward $4 a bushel. And not rise to around $8 per bushel.
Cow numbers continue to decline and that means fewer calves going to market. A short calf supply and continued demand means a strong beef outlook.
"The best I can do is to say corn prices will be somewhere between $4 and $10," Mr Brown told herd owners. "I'm being a good economist and saying 'It depends.'" Weather will be the big variable.
"There's not a beef supply problem," Mr Brown said. Beef demand has continued surprisingly strong, although U.S. consumers have cut back on eating beef. Export demand remains strong.
Other variability factors are continued economic growth and a climb in jobs. While recovery and job growth aren't vigorous, they are growing.
Washington will play a part. There is growing uncertainty on how legislators will handle the debt ceiling. If they close the government, that could lead to a downturn, which could lead to lower beef demand.
Growth is good for farmers. If there is income growth, this time next year there will be big smiles on your faces.
Herd owners who produce what consumers want will come out ahead. Consumers show growing demand for quality beef while quality supplies remain short.
"Produce for quality steaks, not just hamburger," Mr Brown added. "High choice and prime grades are in demand. Look at that as an opportunity.
"As you rebuild your herds, aim not just for numbers but for quality. Premiums paid for quality beef continue to grow.
"Technology for adding better genetics is available. If you follow the research from MU Thompson Farm, you see that prime beef comes from adding better genetics. Thirty percent of their calves grade prime. That is not coming from feeding longer. With high corn prices, you can't feed longer. Genetics can help produce calves that grade prime."
U.S. producers have the technology, but beef producers in other countries, such as Brazil and Russia, are putting great effort into improving cattle through artificial insemination. They use the technology.
Don't just look for good bulls, but the best genetics. Don't just chase the prime quality grades. Look at all of the traits to improve your cow herd. That's one way to distinguish yourself down the road.
In his wrap-up, Mr Brown concluded, "There's great opportunity ahead. Just hope we have a great corn crop this year."