November 30, 2007

 

Cattle producers must keep up with changing rules

 

 

From higher feed costs to a weak US dollar, the rules are changing in the beef and cattle markets, and producers are urged to keep up.

 

In the last 10-15 years, the world economy has grown, and it isn't going to change, said Randy Blach, executive vice president of Cattle-Fax, a private analytical service.

 

Countries are trading more, and the next 10 years of change will be more rapid, creating more trading opportunities, he said during a speech Thursday at the Kansas Livestock Association convention.

 

The US dollar spiked in value in the mid-1990s and has declined sharply since then, Blach said. In the wake of this development, exports are booming. Increased access to overseas beef markets would make a big difference in the well-being of the US beef industry, he said.

 

Blach said he did not know how soon key markets like Japan and South Korea would open up fully to US beef again, but he hoped to see improvements in the first quarter of 2008.

 

Input costs are rising as well, including land values, and they appear to have no inclination to go back down, he said. Costs related to crude oil are up 20 percent for cattle producers over the last three years, and it looks higher this year, Blach said.

 

Land values are up 75 percent, and grazing land values are up 100 percent, he said. These things, along with the battle for acreage to grow corn or soy could bring on an acreage battle and could limit herd expansion. This could make Canada more important than ever for the US beef industry for its cattle and packing plants.

 

Grain prices also are forging new ground, Blach said. World wheat stocks are the lowest in 45 years, and prices are at new highs. With the smallest world corn inventories since the 1970s and higher soybean costs that could buy four to six million acres from corn and support land values.

 

Over the last 10 years, cow inventories in the US have remained essentially flat, bringing on the best years of profitability ever, Blach said. However, beef production is at record highs, through better health and production programs and a trend toward growing larger and heavier cattle. Carcass weights are continually climbing, and he sees average weights up again next year.

 

The cattle cycle has stalled for a variety of reasons, Blach said, but in an interview with reporters, he added that the industry doesn't need as many cows to produce the amount of beef that it once did.

 

U.S feeder cattle imports are expected to be up 1.6 million head in 2007 and even more in 2008. With losses among Canadian producers severe because of high barley costs and the US/Canadian dollar exchange rate, Blach said he expects imports of feeder and slaughter cattle to continue high. But he also expects exports of beef to Canada to remain high, offsetting the cattle imports.

 

US cow/calf producers could continue seeing good profits over the next few years, he said, particularly if the herd size doesn't grow much and demand for their products (feeder cattle) continues to outstrip the supply. Packer capacity is beyond feedlot ability, and feedlots are "bidding away their margins" to get the feeder cattle.

 

Overall, Blach said he sees little change in the US beef industry profitability over the next year or so, but he does see continued changes in the market dynamics.