July 24, 2008


Kansas state economist sees US beef output cuts if costs remain high


US cattle producers have not reaped the same benefits from soaring grain, oilseed and land prices as other farmers because they add costs to the operation, prompting at least one economist to expect production cuts.


Feed is the largest single cost item for livestock and poultry production, accounting for 60 percent to 70 percent of the total cost in most years, said Kansas State University agricultural economist James Mintert.


Although energy, labour and other inputs have increased over the last two years, feed costs have jumped 40 percent to 60 percent, depending on whether a producer is feeding swine, cattle or poultry.


The rising costs of production have largely been absorbed by livestock producers so far, but that cannot continue indefinitely, Mintert said.


A monthly survey of feedlots conducted by Kansas state's Department of Animal Sciences and Industry indicated the cost of feeding cattle in commercial feedlots averaged 74 cents a pound in 2007, up from 54 cents in 2006.


Preliminary estimates indicate cattle feedlots' costs could average near 85 cents a pound in 2008, an increase of 58 percent in two years.


Cattle feeding returns estimated at Iowa State University in Ames, Iowa, showed that cattle feeders experienced the largest loss on record - US$167 per head during February - that producers have had since modern records started being kept in the 1960s.


Similarly, production costs for cow-calf producers have jumped, mostly because of feed costs. According to the Kansas Farm Management Association (KFMA), its cow-calf producer members' feed costs rose to US$346 in 2007, up 21 percent from US$287 in 2006.


The KFMA data indicate that returns for Kansas beef cow-calf operations still exceeded production costs in 2007 by about US$50 per cow. But, the overall anticipated rise in feed costs during 2008 will almost certainly push returns below variable production costs, Mintert said.


That, he said, will spark US herd reductions and encourage some producers to exit the industry.


It is important to note that the losses experienced in the cattle sector were not associated with large cattle price declines, he added.


In fact, prices for market-ready cattle in Kansas were record-high in 2007, averaging US$93 per hundredweight or 8 percent higher than in 2006. So, the reduced profitability was directly attributable to rising costs, especially feed costs.


Higher beef prices from stronger US demand seem unlikely over the next few years. Beef demand has been weakening somewhat since 2004, Mintert said.

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