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Cattle industry continues to face tight supply

Published 6/1/2012 in Beef Empire Days-Industry


Tighter supply and higher prices can be expected to continue in the cattle industry over the next couple of years, Kevin Good, senior analyst of CattleFax, said Thursday night at the Beef Empire Days Sponsors Reception.

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Brad Nading/Telegram Kevin Good talks about trends with the beef industry and the consumer Thursday during a presentation prior to the Beef Empire Days U.S. Premium Beef People Choice Auction at the Clarion Inn. Good is with CattleFax of Denver.

Brad Nading/Telegram Kevin Good talks about trends with the beef industry and the consumer Thursday during a presentation prior to the Beef Empire Days U.S. Premium Beef People Choice Auction at the Clarion Inn. Good is with CattleFax of Denver.

Good was the featured speaker at the event, where he discussed the outlook for both cattle and beef. He said several factors have contributed to the liquidation of herd sizes, including the 2011 drought.

"Mother Nature has been a big part of that. As you think about last year's major drought in the south, we liquidated 1 million cows out of the states of Texas, Oklahoma and New Mexico, combined. Thirteen percent of the beef cattle from those three states was liquidated," he said.

Volatility was another factor he mentioned, saying that it was expected to continue.

"This week's a very good example. ... In the futures market, you're a dollar up, you're a dollar down," he said.

Another factor is grain values, particularly corn, which Good said have increased input costs.

"The increased input costs and feeder cattle calves, corn, energy — this would suggest, really, in the last two years, that it takes 60 percent more capital to finish your fed steer heifer than it did back in 2009, so that's a restraint as we think about not only who's going to own the cattle, but that's also a restraint as we think about re-populating the cattle, because it does take more capital now than it ever has in the past," Good said.

As he displayed graphs on a PowerPoint presentation, Good showed that beef cow slaughter is down 8 percent.

"And so when the year is all said and done, we do think the cow slaughter will be down (500,000) to 600,000 head — the vast majority of that on the beef cow side," he said.

From that, he added that the assumption over the next 12 to 24 months is that cow slaughters will drop by close to a million head, comparing 2011 to 2013.

"That's what it would take to stop liquidation and start to see some mild expansion as you go through the years 2013 and 2014," Good said. "And so as you think about that from a supply standpoint and how that impacts prices, very friendly."

He said that will present some real challenges to the cattle feed business and packing industry.

"If you think about the reduction in harvest levels compared to where we were at last year, in 2013, that's over 8,500 head a day or the equivalent. ... We're going to have that much excess capacity over the next two years, compared to where we were just last year," he said. "And so as you think about the structure of the industry, where we're becoming more consolidated, I think we have to continue to expect that trend to take place and don't be surprised, as we look at the packing side, if we don't lose some packing capacity over the next couple of years."

On the consumer end of things, he said the food service market has improved a lot since the recession, but that there still are consumers who either are unemployed or seeing their disposable income on the decrease.

Good also discussed imports, as he utilized a graph, saying that 5.5 percent of all feeder cattle in the U.S. are from Mexico.

"Mexican feeder cattle imports, year to date, are over 100,000 head bigger than last year. Last year it was 1.4 million. This year, it's going to be 1.5 million," he said. "So we're going to continue to draw from those areas, to go ahead and fill feed yards to capacity, especially with the tighter domestic numbers."

Despite this increase in imports, Good said the U.S. exported more product than was imported for the first time in history.

"So as we think of our projections going forward, how much we've been helped not only on the beef side, but on the pork and poultry side, as well, as far as exports and will those trends continue as we go forward? Because we're becoming more and more dependent on a global market," he said.

Over the next two years, Good said, there will be a tighter supply and stronger prices, but that liquidation of herds should begin to slow.

"With cow slaughter that's declining, some of the heifer replacement data, especially the kill data, would suggest that we're on the front end of seeing liquidation slow. We're on the front end of seeing an expansion over the next two years," he said.

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