Nev., Feb. 7, 2008 -- The corn market will dominate cattle talk in 2008. While the industry struggled to adjust to $3 per bushel corn for most of last year, prices exploded to over $5 per bushel by January. Volatility in the grain markets is sure to squeeze cattle feeders and limit prices for feeder calves in the coming year.
"There is even more reason to be concerned about corn prices this year," says Randy Blach, executive vice president of Cattle-Fax, speaking from the annual Cattle-Fax Outlook Seminar at the Cattle Industry Convention and NCBA Trade Show in Reno, Nev. "Prices for other commodities have risen along with corn, increasing competition for what farmers choose to plant."
Prior to the latest spike in corn prices, Cattle-Fax had projected that corn plantings would decrease by 6 million acres in 2008, down from the 93 million planted in 2007. Now the Centennial, Colo.-based market analyst firm says one of the key indicators to watch is how prices for other commodities respond. If they stay high, it's a signal that other grains are ready to compete for planted acreage.
Unprecedented demand for corn, wheat and soybeans is driving the price surge. Export demand is strong and Congress in December increased the ethanol mandate to 15.2 billion gallons from livestock feed sources like corn by 2012. While the 2007 corn harvest was record-large at just over 13 billion bushels, Cattle-Fax analysts say the need for another near record-large corn crop will pressure margins across the industry.
Other observations from the Cattle-Fax Outlook Seminar include:
• Rising input costs such as fuel are chipping away at profits. Increased risk is afoot. This volatility is stalking the entire cattle industry. Reduced cattle numbers have left both industries with too much capacity, as much as 20 percent by some estimates.
• Rising commodity prices also are causing some farmers to convert pastures to cropland. With the continued drought in the Southeast, where about 25 percent of cow/calf production exists, it will remain difficult for growers and feeders to acquire the grazing volume they need.
• All of this puts renewed emphasis on getting export markets fully restored. International markets offer producers the chance to be paid more for products U.S. consumers don't value much. Increasing exports will help increase demand for U.S. beef, which can offset some of the other input costs the industry is being forced to absorb.
• This is a year in which it will pay to learn about foreign markets and understand the value of trade. For example, the U.S. cattle industry can export tongues for about $10, or use them domestically for 40 cents.
"Profit opportunities exist, but it will take tough management to find them this year," says Blach. "We are in a period of rapid change and thin margins."
He added that rather than producers pushing beef through the production chain, consumer desires increasingly drive it, offering cattlemen more chances than ever for profits. Today, nearly 25 percent of cattle are sold through some sort of certified program. Nearly 60 percent of all fed cattle do not sell on the cash market.
"There are a lot of programs out there that hold promise for increased value," Blach says. "But you have to do your homework to make sure you're selling into one that actually pays. We always have to re-evaluate our business, and some of the dynamics this year make it imperative that cattlemen position their business to minimize risk as much as possible and take advantage of the profit opportunities that are out there. Volatility will be more extreme than in years past."
For a detailed look at the factors influencing the cattle industry in 2008, call Cattle-Fax at 303-694-0323 and order your copy of its 2008 Outlook & Strategies (cost of $100).