HUNTIN' DAYLIGHT -- TIME TO PATCH THE ROOF

by: Wes Ishmael

By all reckoning, 2012 is going to be one of those years when cow-calf producers will have the economic opportunity to fix what needs fixing, be it genetics, management, facilities and whatnot. That's because supplies will continue to run tighter than demand, thanks in large part to last year's horrendous drought in the Southern Plains, which looks to continue.

David Anderson, an AgriLife Extension livestock economist explained at the Brock Faulkner-Brazos Valley Fall Cattleman's Clinic that the estimated liquidation of 600,000 cows in Texas is the most ever in a single year there. On a percentage basis, the estimated decline of 12 percent is the most since 18 percent in 1934-35.

Nationally, Anderson says beef production is estimated to be four percent lower in 2012.

As it is, analysts say in the December Livestock, Dairy and Poultry Outlook (LDPO), “Beginning with December 2009 prices for 750-800 lbs. Medium and Large #1 Oklahoma City feeder cattle prices that were four percent above 2008 prices, feeder cattle prices have exhibited year-over-year increases every month.

“Increasingly scarce supplies of feeder cattle, especially heavier, older yearlings, make it likely that feeder cattle prices will continue high for the next two or three years until calf crops begin increasing year-over-year. Additional longer term support for feeder cattle prices will come as the expected lower corn and feed prices materialize in 2012-13.”

Anderson projects 2012 prices for 600 lbs. steers at $131-$138/cwt. during the first quarter, $136-$144/cwt. in the second quarter, $137-$147/cwt. in the third quarter and $133-$143/cwt. in the fourth quarter. He notes that slaughter steer prices hit a high of $125/cwt. in April and a low of $105/cwt. in June. In December prices were bouncing around the $18-$120 range.

“…Despite the high fed cattle prices, profit margins have stayed at breakeven levels or lower, in some cases much lower,” say LDPO analysts. “In addition, cattle feeders continue to place expensive feeder cattle in anticipation of higher fed cattle prices in 2012, when supplies of fed cattle are expected to become scarce. However, fed cattle supplies will likely continue at or near current levels until sometime during the first half of 2012 because of the large numbers of lightweight feeder cattle that were placed on feed during the last half of 2011…”

Of course, a couple of challenges that travel the same rails as tight supplies are higher retail prices that affect demand, as well as inherently lower per capita consumption.

“In 2010, per capita retail weight consumption of beef was 59.6 lbs., down 1.5 lbs. from 2009's. This year that number is projected to be 57.5 lbs., which will be the smallest since before 1955. U.S. per capita beef consumption peaked at 94.6 lbs. in 1976,” say analysts with the Livestock Marketing Information Center (LMIC).

Those analysts explain that per capita consumption is annual beef production adjusted for imports and stocks in cold storage divided by the U.S. population.

“U.S. per capita beef consumption is not the same as beef demand,” the LMIC analysts emphasize. “Consumption is just one of two important components of the domestic demand relationship. Demand is a relationship that also incorporates a price dimension. Aggregate consumer demand for beef calculations use U.S. per capita retail sales weight and a calculated inflation adjusted retail beef price by USDA's Economic Research Service based on data collected to calculate the national Consumer Price Index. According to those quarterly indexes, year-over-year domestic consumer beef demand has improved slightly but remains below pre-recession (i.e. 2008) levels.”

Exports grow with Economic Stability

International beef demand is another story.

U.S. beef exports set a new annual record in October. According to the U.S. Meat Export Federation (USMEF) in December, the value of beef exports in October was $452 million, for a new annual record of $4.49 billion. That's 37 percent more than the then record-pace established in the first 10 months of 2010. Pork exports are also on record pace.

“Establishing new annual value records just 10 months into the year is an extraordinary accomplishment, and one that the U.S. pork and beef industries should be very proud of,” says USMEF President and CEO Philip Seng. “Sustaining an aggressive export pace is critical for maintaining and creating American jobs and a positive balance of trade.”

The per-head value of beef exports in October equated to nearly $210 per head of fed cattle slaughter, increasing the annual average to $202.82 per head.

“The continued rebuilding of consumer confidence in U.S. beef in both Japan and Korea is essential as these key markets recover sales volume and value that was lost in the post-BSE years,” Seng explains.

What's more, the economy shows signs of shrugging off the Great Recession's aftermath, both domestically and internationally. There's no sure bets, of course, given the unfathomable domestic debt and the debt woes that continue to threaten EU countries. But there are plenty of bright spots.

According to a statement from the Federal Open Market Committee in December, “Information received since the Federal Open Market Committee met in November suggests that the economy has been expanding moderately, notwithstanding some apparent slowing in global growth. While indicators point to some improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but business fixed investment appears to be increasing less rapidly and the housing sector remains depressed. Inflation has moderated since earlier in the year, and longer-term inflation expectations have remained stable.

“…The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations…”

The folks at the Fed also expect the economy to require exceptionally low levels for the federal funds rate through at least mid-2013.

Why Difference Matters

As important, cattle producers continue winning or at least staving off key proposed laws and regulations that would interfere with the ability to stay in business.

Consider the so-called GIPSA rule that threatened to upend the opportunity to cattle producers to be rewarded based on how well their cattle meet or disappoint expectations. That proposed rule would have wreaked havoc on the U.S. cattle industry causing livestock producers to lose an estimated $169 million, says Colin Woodall, Vice President of Government Affairs for the National Cattlemen's Beef Association (NCBA).

In November, Congress passed an agricultural spending bill that prevented USDA from further work in 2011 on sections of the rule mandated by Congress during the 2008 Farm Bill related to competitive injury, unfair practices and undue preference. That part of the proposed rule caused the most concern for cattlemen and women like Robbie LeValley, a Colorado cow-calf producer and co-owner of Homestead Meats.

“The vague definitions would open the door to an increased number of lawsuits because mere accusations, without economic proof, would suffice for USDA or an individual to bring a lawsuit against a buyer. This would have been a trial lawyer's bonanza,” says LeValley. “I am relieved that USDA will not move forward with this rule as originally written. Congress not only heard us but they also understood the far reaching unintended consequences this rule would have created.”

If anyone ever wondered why a free market with economic incentive was important to sustainability of the cattle business, all they had to do was thumb through the most recent National Beef Tenderness Survey.

That survey, funded by the beef checkoff, indicates that most steaks evaluated in the 2010-11 survey were considered tender and similar to steaks evaluated in the previous survey in 2005-06.

The 2005-2006 survey showed an 18 percent overall increase in tenderness as compared to 1999. The 1999 survey revealed a 20 percent increase in tenderness as compared to the first tenderness benchmarking survey conducted in 1990. The increased tenderness noted from 1990 to 1999, to a large extent, was attributed to checkoff-funded science which increased the industry's understanding of beef palatability.

According to the most recent survey, the least tender cuts continue to be from the round, suggesting the need for improved aging practices and increased consumer education focused on proper preparation and cooking to enhance consumer satisfaction.

“Information from the National Beef Tenderness Survey has been very important in setting priorities for additional research that needs to be conducted in product enhancement, to look at where there are gaps in information or lack of information in certain areas,” says Jeff Savell, PhD and professor of Animal Science at Texas A&M University.

“Beef quality, when you think about it, means a lot of things to a lot of people, but to a consumer, quality has everything to do with consistency, flavor, tenderness and overall taste,” says Molly McAdams, PhD and chair of the beef checkoff's Joint Product Enhancement Committee.

Making funds available for the research wouldn't be possible unless producers had economic incentive to provide the kind of cattle worth the most to a given market. Unless there were economic incentives based on differences, no one would utilize the research to exploit the available technologies to select for and manage for more tender beef capable of satisfying consumer demand more consistently.

It's called competition. Thankfully, it still exists.







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