HUNTIN' DAYLIGHT -- SO LONG, HERD EXPANSION

by: Wes Ishmael

Even though it seems barely out of its infancy, national herd expansion may be coming to an end.

“Expansion has likely not stopped but will prove to be lower than initial forecasts and appears unlikely to continue substantially into 2017,” says Stephen Koontz, an agricultural economist at Colorado State University.

“It is clear from the slaughter data trends that the summer of 2016 was the first step in the transition to lower national herd growth rates,” say analysts with the Livestock Marketing Information Center (LMIC) in a late-September issue of In the Cattle Markets. “As 2017 unfolds, the year-over-year increase in female slaughter is projected to continue causing a more notable slowdown in cowherd growth as of Jan. 1, 2018.”

Economics is the driver, of course.

Although retail prices are declining gradually, fed steer prices declined 21 percent since the beginning of the year and were 25 percent lower year-to-year in late summer, according to USDA's Livestock, Dairy and Poultry Outlook (LDPO) in September.

Glynn Tonsor, agricultural economist at Kansas State University (KSU) shared LMIC's most recent price forecasts at the later-September KSU Beef Stocker Field Day. For the third quarter, calf prices (Southern Plains steer 500-600 lbs.) are forecast at $161-$164/cwt. and then $160-$165 in the fourth quarter.

LMIC price forecasts for feeder steers (Southern Plains, 700-800 lbs.) are $147-$149 in the third quarter and $146-$150 in the fourth.

Spun another way, average cow-calf returns are plummeting from recent historic highs.

“Returns this year will not cover the total economic costs for most cow-calf operations,” LMIC analysts say. “While estimated costs of production have decreased slightly in 2016, based on cheaper fuel, feed, and slight drops in pasture cost, it has not been enough to offset declining calf prices.”

As of late September, LMIC estimated cow calf returns this year (return over cash costs, plus pasture rent) at about $15 per cow, the lowest since 2009. Estimated cow-calf returns last year were $285 per cow.

“Note that these calculated returns do not include all economic costs of production…,” LMIC analysts say. “Every operation has different resources and costs. Year-over-year changes in calculated returns are more insightful than the specific numeric levels.”

Demand Determines Industry Size and Fortune

Slice it however you want, the reason prices are declining is because supplies are growing faster than demand.

Through the first half of this year, beef demand had declined three of the last four quarters, according to the All-Fresh Beef Demand Index (AFBDI) calculated by agricultural Tonsor, at Kansas State University. The decline was marginal in the last quarter of last year (-0.97 percent) and in the first quarter of this year (-0.49 percent). In the second quarter, though, it declined 3.07 percent. Other than a similar decline in the first quarter of 2014, that's the most significant quarterly decline, year to year, since the first quarter of 2010. Since then, the all-fresh AFBDI declined in only four quarters, counting the last three.

Whether the recent decline ends up as blip on the wider screen of history or the beginning of a trend lower, prices are declining amid increased production even while beef production remains less relative to recent history.

In 2016, per capita disappearance of red meats and poultry on a retail basis is projected to be 214.8 lbs. per person, according to analysts with USDA's Economic Research Service (ERS), in the most recent LDPO.

For perspective, ERS analysts explain, “Disappearance in 2006 was almost 222 lbs. per person, about seven lbs. more red meat and poultry per person than is expected to be used in 2016. Most of the difference (almost 11 lbs.) is due to tighter domestic supplies of beef in 2016.”

On the upside, international demand continues to pick up steam as U.S. beef prices get more competitive, despite the ongoing challenge borne by the value of the domestic dollar compared to other currencies.

U.S. beef exports in August were the strongest in two years, in terms of volume—including record-large monthly volume to South Korea and Taiwan—according to statistics released by USDA and compiled by the U.S. Meat Export Federation (USMEF). In terms of value, August beef exports were the highest so far this year.

Compared to the previous year, August beef export volume climbed 27 percent to 106,818 metric tons (mt). For January through August, export volume was up six percent to 747,706 mt, while value was down seven percent to just over $4 billion.

Export value per head of fed slaughter was $256.73 in August, down four percent from a year ago. Value for January through August was $252.50, down 12 percent.

“Currently U.S. beef and pork are very competitive, as the production of our key competitors – Australia and the European Union – has moderated and prices have jumped,” explained Philip Seng, USMEF president and CEO. “As U.S. competitiveness continues to improve, we remain optimistic that exports will maintain positive momentum through the end of this year and into 2017.”

Although it may be some time until beef heads that direction, China finally lifted its 13-year ban on U.S. beef exports in September. It is already the second largest buyer of beef in the world.

That's why the continued debate surrounding the nation's beef checkoff is so frustrating.

The checkoff remains $1, when it needs to be more, even as some states maintain their own checkoff in order to bolster resources. Yet a vocal minority continues to clamor for getting rid of the checkoff, even though about three-quarters of producers continue to support it.

According to a random survey of 1,200 beef and dairy producers nationwide, conducted by the independent firm, Aspen Media & Market Research, late least year and early this year:

• 84 percent of producers say the beef checkoff has helped to contribute to a positive trend in beef demand.

• 73 percent of producers say the beef checkoff contributes to the profitability of their operations.

• 76 percent say the checkoff represents their interests.

• 67 percent of producers believe the checkoff is well-managed.

Studies conducted over time continue to quantify multiple dollars worth of value returned for every dollar invested.

In September, the Cattlemen's Beef Board approved a budget of $40.7 million for fiscal year 2017, subject to approval by USDA. The funds will be used for development and implementation of programs of beef promotion, research, consumer information, industry information, foreign marketing and producer communications.

At a time when more resources are needed, just when beef demand is becoming more challenging, that budget represents cutting more than $5 million from proposed programs. The new budget is nine percent less than the year before.

The checkoff is not an industry savior and was never intended to be. But, think for a minute about the many programs enabled by it over time, and ponder whether the industry and beef demand are likely better because of them.

Things like:

• National Beef Quality Audits that identify, quantify and benchmark beef's performance relative to a host of customer and consumer demands.

• Beef Quality Assurance that provides training and documentation of industry practices relative to food safety and animal wellbeing.

• Product research and development that has yielded products like the Flat Iron steak.

And on and on and on....







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