by: Wes Ishmael

“Net returns have been pressured again in 2009, as input costs remain rather high compared to historical norms while calf prices have struggled,” say analysts with the Livestock Marketing Information Center (LMIC). “Calf prices are forecast to be slightly higher in the fourth quarter of this year than in 2008, however for the year, calf prices will still be the lowest since 2003.”

LMIC analysts expect cow-calf returns for this year to average -$20 per cow. It would be the second consecutive year of negative returns, the first consesuctive annual losses since 1998. Again, that's on average.

In the 36 years the LMIC has estimated cow-calf returns (including 2009); 15 years have posted negative cow-calf returns; nine of those years posted losses greater than $50 per cow.

“…In the last month, prices for 5 and 6 weight calves have dropped about $10/cwt., or $50-60 per head. If you compare prices from July-August to now, the price decline has been about $20/cwt., over $100 per head. That price decline is substantially more than is typical based on historic seasonal patterns. Because of the large fall calf runs, some price weakness is to be expected, but this is more than that…” explained Dillon Feuz, agricultural economist at Utah State University in a latter October issue of In the Cattle Markets.

Feuz says one factor is this year's later corn harvest which has increased corn prices, subsequently pressuring cattle prices.

“…The other on-going and worsening situation is there continues to be no money in feeding cattle…I really thought, and I am sure feedlots thought, that they had bought feeder cattle cheap enough to be making money at this point in time. But the price of fed cattle has also declined from expectations. Rather than selling fed cattle in the upper $80's this fall, as was expected last spring, we have struggled in the low $80's per cwt,” Feuz explained.

Another example of the economic cap in place can be seen with the lack of market bounce through October for calves destined for winter wheat pasture which is shaping up to be the most bullish in years.

LMIC analysts explain prices for lighter weight feeder cattle are gaining little support from cool-season pasture demand, and prices for feedlot-placement-weight feeder cattle declined in September 2009 over both August 2009 (down 4 percent) and September 2008 (down 12 percent).

Slogging through Reality

All of this has occurred even as cow numbers continue to dwindle—smaller herds the last two years and likely again this year.

“We're reducing numbers (cow inventory) as a result of drought over the past two years, and that could put us in a very profitable situation in the future. We slaughtered a lot of cows last year and this year, which has exceeded 2008 in some cases,” explained Mark Welch, an economist with the Texas AgriLife Extension Service recently.

Likewise, according to the most recent Livestock, Dairy and Poultry Outlook from USDA, “In 2008, drought-motivated beef cow slaughter kept commercial cow slaughter high relative to January 1 inventories. In 2009, cost-driven dairy cow slaughter has kept commercial cow slaughter high. However, the increased commercial dairy cow slaughter has not offset the decline in commercial beef cow slaughter, leaving expected total commercial cow slaughter down by less than one percent for the first nine months of 2009. Beef cow slaughter could increase seasonally over the next several weeks as cow-calf producers cull their herds prior to winter supplemental feeding.”

According to Welch, heifer retention rates have also been on the decline, down 2.2 percent compared to 2008 and the fewest in over 30 years. “We're not going to have as big of a production beef plant (number of calves produced) in 2010 as we did this year,” he says. “When the economy increases and supports the demand, in general I think we can predict prices are going to increase next year, and especially going into 2011.”

Even though cattle cycles have become flatter, less reliable—less useful for predicting price—this kind of liquidation spawned by a lack of profitability typically sows the seeds for future profitability and herd expansion. There are too many factors in flux this time around to say whether or not that will be the case, with any degree of certainty.

Demand always holds the Trump Card

For one thing, heavier year-to-year carcass weights continue to dilute the decline in cattle numbers. Earlier this fall there was lots of market chatter about there being more cattle out there than previously thought (of course, there always is that kind of gum flapping). Rather than numbers, it was increased tonnage; the impact on near-term price is the same.

As supply remains plentiful, demand continues to shrink. It was declining before the Great Recession. With the financial meltdown, it has remained stronger than common sense could hope for, buoyed on average by the Chuck and Round. Of course, the recession continues to cloud predictions about chances to increase demand.

There have been some hopeful signs. Federal Reserve Chairman, Ben Bernanke, even went so far as saying the recession has ended, at least on a technical basis. But for every ray of light, there have been more clouds of uncertainty—increasing unemployment rates, fears of a double-dip recession and the like.

Analysts with CME Group's Daily Livestock Report pointed out recently, “…The more bearish view of the market points to continued very high unemployment and the likelihood that unemployment will continue to rise and top 10 percent in the coming months. This will tend to keep foodservice sales under pressure and there is a sense that the slowdown in foodservice business has had a disproportionately negative impact on beef sales. Also negative for end year demand is the current outbreak of the H1N1 flu and the disruptions it could cause going into the holiday season…”

Control what you Can

“Profitability is forecast to return in 2010 and 2011, however until then the economic incentive to turn strongly positive for cow-calf producers for overall U.S. cowherd growth will be delayed,” say LMIC analysts.

In the meantime, uncertainty underscores the value in boosting herd income via management each producer controls.

Consider calving season.

Kris Ringwall, an extension beef cattle specialist at North Dakota State University recently compared two herds that calved in 2008:

Herd A--186 calves during the first three 21-day calving periods (63 days) period with 74.7 percent of the cows calving in the first 21 days.

Herd B--256 calves during this 63-day period, but only 42.5 pounds of the cows calved during the first 21 days.

In herd A, Ringwall explains calves born during the second 21 days of the calving season were 42 pounds lighter than those born during the first 21 days of the calving cycle. Those born during the third 21 days of the calving season were 86 pounds lighter than those born during the first 21 days.

In herd B, Ringwall explains calves born during the second 21 days of were 41 pounds lighter than those born during the first 21 days. Those born during the third 21 days of the calving cycle were 88 pounds lighter than those born during the first 21 days.

“Adding this weight loss to the number of calves in each cycle, herd A gave up 1,680 pounds on 40 calves born during the second 21 days of the calving season, while herd B gave up a whooping 4,551 pounds on the 111 calves born during the second 21 days,” Ringwall says. “If one looks at calves born during the third 21 days of the calving season, herd A gave up 602 pounds on seven calves and herd B gave up an additional 3,168 pounds on 36 calves. Adding up the weight loss, herd A lost 2,282 pounds or 1,231 pounds per hundred calves, while herd B lost 7,719 pounds of calf or 3,045 pounds per hundred cows. Granted, the younger, lighter calves may bring more dollars per pound to help offset some of the losses, but they don't bring more dollars per head.”


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