TAMPA, Fla. — Cattlemen are hoping predictions of more “normal” precipitation will mean lower feed grain prices and a return to stronger margins.
At the 2013 Cattle Industry Convention and National Cattlemen’s Beef Association (NCBA) Trade Show Feb. 8, participants heard CattleFax market analysts’ projections for the year ahead.
Creighton University Professor Emeritus Art Douglas told the audience there is a chance some regions of the United States will see a return to more normal precipitation patterns during the upcoming growing season. That was welcome news to participants, many of whom have been enduring a multi-year drought that has affected more than 70 percent of cattle country.
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, though, 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.