The U.S. beef cow herd is expected to continue to decrease in the coming months and year, primarily due to a lack of profitability, high production costs, competing meats, and alternative uses of land.
The lack of profitability by the majority of cow-calf producers can be attributed to weak demand caused by the severe recession, says Walt Prevatt, Auburn University Extension economist.
High production costs, says Prevatt, include those for feed, fertilizer, labor and land rents. “We’ve also seen pasture acreage moving into grain production and/or conservation programs and other non-farm uses such as recreation and rural non-farm development. Given the current lackluster level of profits and immense uncertainty in the U.S. general economy, cattle farmers will likely continue to liquidate cattle numbers until profitability can be achieved,” he says.
On the brighter side, U.S. beef exports during 2010 are expected to increase to 2.3 billion pounds — up 21 percent over the previous year — due to a significant recovery by the majority of U.S. trading partners and a weak dollar.
“However, U.S. beef exports during 2011 are expected to decline slightly due to financial market weaknesses among several trading partners,” says Prevatt. “Exports beyond 2011 are expected to be gradual as world economies recover from recessionary conditions. Any increase in the levels of U.S. exports of beef and/or competing meats such as pork or poultry will likely have a significant impact on U.S. beef prices during the next couple of years.”
U.S. cattle farmers clearly are continuing to decrease their inventory of cattle and calves, he adds. In the mid-year July 1, 2010 Cattle Report, cattle producers told USDA they had about 500,000 fewer beef cows that had calved (-1.6 percent) than a year ago. Beef cow replacements were down 100,000 head (-2.2 percent) from a year ago at 4.4 million head. A decrease in beef cow replacements and beef cows that have calved during 2010, says Prevatt, suggests that herd liquidation will continue in 2011.
“A smaller inventory of cattle and calves and smaller calf crop during 2010 will likely limit the growth in beef production during 2011. USDA projects U.S. beef production during 2011 to be about 25.1 billion pounds or 2 percent less than a year earlier. This level of beef production will be influenced by any adjustments in average carcass weights and the level of feeder and live cattle imports from Canada and Mexico,” he says.
Turning to feed and forage conditions, Prevatt says the 2010 growing season of the major grain-producing regions got off to a fast start. Adequate weather conditions allowed planting to be completed in most major grain growing areas earlier than normal.
“The majority of the crop received favorable growing conditions most of the season. Harvest weather is currently adequate in most areas for a timely harvest,” he says.
If USDA’s current corn and soybean production levels are realized, both crops will be larger than in 2009. Corn and soybean futures prices have increased corresponding to the forecasted smaller crops that were projected earlier this season and improved export markets.
“Corn and soybean prices are expected to move higher in 2011 due to tight supplies worldwide and as economies recover from recession. Therefore, livestock producers should seriously consider taking steps to manage their feed purchases during the 2010 crop harvest,” advises Prevatt.
Another factor that can certainly affect feed prices and feeder calf and feeder cattle prices is the level of export demand for corn and soybeans, he adds. “Any major changes in world export demand for these commodities could significantly move market prices. The recent crop failures in Russia and Western Europe due to the drought will significantly reduce grain supplies and increase world grain prices. Additionally, the strength of the U.S. dollar is certain to influence world export demand.”
Fortunately, says Prevatt, pasture and range conditions have been better over many of the cow-calf states this year. “However, high input costs moderate feeder calf prices, and marginal milk prices have resulted in a large number of cull cows moving to slaughter this year,” he says.
Total 2010 U.S. hay production is expected to be marginally larger than a year ago, with most Southeast states showing comparable levels of hay production compared with 2009. “However, high input costs will likely result in continued high hay prices. Thus, alternative winter forages and feedstuffs will be in much demand this winter as cattlemen seek to feed their cow herds.”
Beef demand has felt some challenges the last two years due to less interest in protein diets, higher unemployment, and tightening consumer grocery budgets due to the higher cost of living, notes Prevatt.
Demand to be tested
“Beef demand is expected to be further tested during 2011 as consumers continue to experience rising prices for most goods and services. If consumer disposable income does not rise proportionally, shopping habits and choices will shift as prices rise forcing consumers to substitute and/or reduce the bundle of goods and services they consume. The weak U.S. economy during 2010 resulted in a decrease in domestic beef demand. Fortunately, world beef demand increased as world economies recovered from the recession and a weaker U.S. dollar contributed to increased exports.”
Per capita consumption of beef is expected to decline during 2010 and 2011. Beef production during 2010 is expected to be 25.7 billion pounds, down 0.3 billion pounds or 1 percent from a year ago.
Beef imports for 2010 are estimated to be 2.6 billion pounds or down about 78 million pounds more (2.9 percent) from 2010. Beef exports for 2010 are expected to be 2.3 billion pounds, up about 394 million pounds (21 percent) compared with 2009.
“The combination of lower domestic beef production, lower imports, and higher exports are expected to decrease domestic disappearance. As a result, overall domestic disappearance should decline somewhere around 727 million pounds. This reduction in domestic disappearance will result in a decrease in beef per capita consumption to around 59 pounds per person in 2010. Per capita consumption for 2011 is estimated to be about 57.8 pounds per person. Also, as the U.S. population increases in the future, per capita beef consumption will likely be lower unless U.S. beef production increases and/or imports increase.”
It is very important, says Prevatt, that the United States continues to grow beef export markets. These export markets could be worth $5 to $10 per hundredweight on the value of fed slaughter cattle. Growth in beef export markets will also help to moderate the price impacts of any weaknesses in U.S. broiler and pork exports.
The 2011 cattle market, he says, will continue to operate with a great deal of uncertainty. Cattle farmers should monitor several factors including changes in domestic beef demand (future strength/weakness of U.S. economic recovery), supplies of broilers and pork, export and import sales (beef, broilers, and pork), feedstuff prices, monetary exchange rates, and adverse weather impacts (the length, extent, and severity of the droughts, floods, extreme temperatures, etc.).
“The cattle markets could experience some volatile movements with abrupt changes in any of these factors and/or combinations of factors.”