US Beef Cattle Herd Liquidation Continues

[farmers_son]

From Meat and Livestock Australia.

More market news29 July 2011

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The US cattle herd continues to decline, with the United States Department of Agriculture (USDA) reporting a 1.1 million head fall for the year to 1 July 2011, at 100 million head. This is the smallest July US cattle inventory since records commenced in 1973.

While industry participants were tipping US producers to begin rebuilding efforts, severe drought conditions across the southern plains of the US saw increased beef cow slaughter during the second half of last year and over recent weeks. As a result, the US beef cow herd has declined for the fourth consecutive year, with numbers now standing at 31.4 million head.

Any potential for the US herd decline to be reversed continues to be put on hold, as the number of heifers for beef cow replacement declined 5% year-on-year, to 4.2 million head - the fifth consecutive annual decline. Fewer replacement numbers will continue to pressure calf crops, which will lead to lower beef production over the next couple of years - a very bullish factor for US beef prices in 2012.

Contrary to the beef herd, the US dairy herd is in an expansion phase, although the increase in numbers is not enough to offset the decline in the beef cattle herd. Prospects for further expansion in the dairy herd has been boosted with heifers for dairy cow replacement and dairy cow herd numbers jumping 4% and 1% respectively, to 4.2 million head and 9.2 million head. Drought conditions have seen dairy cow slaughter lift 6% so far this year (January to June), to 1.5 million head.

Given the anticipated tighter cattle and beef supplies for the US in the coming years, demand for imported product is expected to increase, with beef prices also forecast to rise. However, price movements for the remainder of 2011 will continue to be heavily dependent on the state of the US economy and competitor meats.

[per]

The US economy precariously on the edge of the tank tempers what could be very good news. (for us)Here is my worry. Several of my sisters friends were (with permission) camping at our private campground along the river at our ranch. I was checking fence and cows and dropped in afterward. They were sitting around the campfire cooking up what looked like a big fish or loin in tin foil. Upon inquiry they said it was a pork loin. They explained it was 3 times cheaper than beef. I explained that the facility they were using for free was paid for with beef. The reason I am passing this on is that this is the attitude of the middle class. These guys were all either self employed or had good jobs. We have some work to do to get these guys buying beef again.

[farmers_son]

A couple of comments on Meat and Livestock Australia's (MLA) analysis of the U.S. market.

First, I am just blown away by what Australia's $5 a head non refundable checkoff allows MLA to do. Obviously that checkoff increases Australia's competitiveness and contributes to their knowledge of the world beef situation. Cattle orgs within Canada and the U.S. simply do not have the funding to keep up.

Secondly, what is wrong with Stats Canada that we cannot come out with our domestic July cattle numbers until the last half of August when the U.S. has their July 1 numbers out the same month. This is need to know information for our Canadian industry.

I thought the most important message was the last paragraph "Given the anticipated tighter cattle and beef supplies for the US in the coming years, demand for imported product is expected to increase, with beef prices also forecast to rise. However, price movements for the remainder of 2011 will continue to be heavily dependent on the state of the US economy and competitor meats."

While there is strength in the market the upside is limited as hogs are still on life support and chickens are not affected by price increases from corn destined for subsidized ethanol as fed cattle are. We have competition for consumers protein choices. However I do not see prices declining unless the U.S. economy gets much worse.

Meanwhile the U.S. is showing the world just how dysfunctional their system of government can be as their leaders posture in front of the voters and play games with the economy of not just their nation but of the world's free market economy.

[farmers_son]

Per. I wonder if they would have wanted to camp alongside a hog barn? Maybe not a fair question as along a cattle feedlot may have provided the appropriate relaxation experience either.

It is tough to compete with cheap.

On the topic of hogs another hutterite hog barn "accidentally" burned down in the last short while. I believe that something like 15 to 20 very large hog barns have burned down since the hog industry went into the tank. It will be a while before that capacity is rebuilt.

[grassfarmer]

A puzzling thread - I'm not really sure what its about as it seems to head in different directions.

FS is concerned that we don't have cattle inventory numbers to hand sooner - "This is need to know information for our Canadian industry." Why? other than curiosity value I see no real benefit to producers. What can "industry" do with it and I assume by industry you mean packers? Do you think they will pay more for cattle today if they think there is a scarcity ahead? It's clear companies like Cargill have far better cattle inventory information of their own - information gathering is a big part of their business and I believe they have their own satelites to collect information from around the globe.
So how does $5 out of an Australian producers pocket for every animal he sells benefit him if it is used to predict US cattle inventory numbers? Does it give him confidence to increase his herd size to meet future demand?

Per's comments about the middle class buying pork because it was 3 times cheaper than beef with the implication these type of consumers have stopped buying beef. Really? that's not what I see.

[per]

Just making a comment about an observation. These were not the same folks I market my high price grass finished product to but they definitely are middle class folks who drove 50k pickups pulling campers etc and live in $650000/house neighborhoods. It appeared because they can camp for free and eat cheap then we can afford the toys and the big houses. Maybe I am reading too much into it. It could have been they just like pork but I asked and they said pointed out the economics. Kind of like a novel, sometimes it just means what it means and was part of a conversation. This thread could easily be a coffee shop conversation solving all the worlds problems but with no real agenda driven purpose.

[farmers_son]

You view the entire MLA newsletter at:
http://news.mla.com.au/rp/375/process.clsp?EmailId=500046613&Token=2C63EAB2E1E29 130B8833C39025F00185

You will see the Aussies are thinking globally and that they understand the situation in all the worlds major beef exporting and importing nations. Maybe this a waste of their producers 5 bucks. Maybe there is a reason they enjoy their prominence as a world beef exporter. You can decide for yourself. I happen to think the kind of market intelligence the Aussies gather has no down side and huge up side benefits for their producers.

Pork is cheap and I know just what those campers were talking about. I would have bought the pork too if it were that much cheaper.

Cheap competing meats will limit this markets upside. The sky is not the limit. But low cattle numbers (based on the USDA July 1 cattle inventory numbers) should ensure that prices at least stay where they are. My guess only but I need to make those guesses.

However since I do not know the Stats Can numbers I am speculating that our situation is going to be similar to the U.S. And I won't know for sure for another three weeks. I think when the Americans get a snapshot of their industry 3 or 4 weeks ahead of when I get a snapshot of our industry the extra time and longer planning horizon gives them an advantage over us.

[grassfarmer]

I'm still not sure what decisions that type of cattle inventory data leads you to make f_s? Seeing overall cattle numbers decline doesn't necessarily mean that high calf prices will prevail in the fall. Look at this other report that predates yours by a week:

CHICAGO, Jul 22, 2011 (Dow Jones Commodities News via Comtex) --

TOP STORIES

US Cattle Placed In Feedlots Rise In June From Year Ago

The number of young cattle added to feedlots in June was 4.1% higher compared to last year as drought-stricken producers sold animals to feedlots earlier than expected. The U.S. Department of Agriculture released its semiannual cattle-inventory and monthly cattle-on-feed reports Friday, after trading closed. Feedlots added 1.7 million young animals, which are known as feeders, during June. Analysts surveyed by Dow Jones Newswires expected the USDA to show feedlots made 1.58 million placements, or 7.6% less than in June of last year.

http://futures.tradingcharts.com/news/futures/DJ_LIVESTOCK_HIGHLIGHTS__Top_Stories_Of_The_Day_16 1992043.html

Maybe more cattle on feed earlier and high priced corn will dampen the enthusiasm of US feedlots to pay too much for calves later in the fall and that would maybe have a knock-on effect on Canadian prices?
Then again the Canadian harvest is as yet undetermined - will there be lots of cheap grain on the prairies caused be weather delays. Would that increase competition for calves this fall?
Lots of speculation and as far as I can see that's all it is - how does knowing cattle inventory numbers help you make decisions? I'm curious.

[greybeard]

I don't follow pork prices but last I looked they can't seem to sell it cheap enough. The price chart goes down but consumption continues to decline in NA. Many restaurants don't even have it on the menu.
Absolutely no doubt the Aussies have a much better focused program. Not sure that is all due to bigger budget. I wounder if they have multi page ads promoting beef in cattleman's mags?

[farmers_son]

Check out:
http://www.australian-beef.com/

And grassfarmer is right, I am speculating. I clearly remember when I was just a kid and the cattle buyers would come into the yard and want to buy our fat cattle. We had no phones back then. We had radio but no TV. Really there was not much for roads either and our world was not very big.
I don't recall hearing market reports on the radio but I was not very old and I may not have listened. The first cattle price reports I remember were the Alberta Cattle Commission reports.

The buyers would offer a price and Dad would have to decide whether or not to take the buyers price. And as I remember it the decision was made on the spot right then and there. With the bad roads if the buyer left he might not be back for a month or not back at all. And that was it how done. Later on we had auction markets and at least you had a clue. Auction markets were a great thing.

I was not very old but I remember how it was. Maybe that is why I am an information junkie today. I have never see any certain way to predict prices and it is all just speculation.

[ASRG]

Just my opinion:
Live cattle prices have not risen enough to keep up with inflation.
I think probably beef has mostly kept up with inflation? Somebody is making money, although I doubt they are making a fortune!
When you take the "average" canadian consumer they need to consider where they spend their food dollar......not because food is overly expensive....but because everything else is? Fuel, housing, utilities, recreation...all have gone up a lot in the last twenty years!
A clear example is my own case: 19 years ago I built a new house using a general contractor. 1550 sq ft. double attached garage,all the bells and whistles of the day- $71,000. I supplied the land/well/septic system/road....I doubt I had $100K in total?
I sold steer calves that year for $1.27/lb. and those were heavy 750 lb calves...not sure what 600 lbs. were worth.
Today I couldn't build that house for $200 K...and last fall I sold 650 lb steers for $1.28....you do the math.
In 1992 it took 2.7 acres to keep a cow....that was hayland and tame pasture. Basically you could get about $30/acre for rent because barley was only about $1.50/bu and canola $5.50/bu......today if you ask $80/acre there is a stampede at your door!
Barley is still a dog at around $4/bu but canola rocks the world at $13/bu.?
On a four year rotation with decent yields the average gross price of crop production is $550/acre? So at 2.7 acres per cow....she needs to gross $1485 to equal crop!
Recently I was involved in a real case, where a farmer near Three Hills Alberta negotiated a surface lease renewal with an oil company for $585/acre/yr. It went to mediation and through his records he proved that was indeed his production returns!
Is what we are seeing, a real shift in land use ? Will crop prices fluctuate and will inputs fluctuate? Without a doubt....but I doubt cattle prices will rise enough to match the money in crops?
Now I may be completely wrong, but I suspect the cattle business will retract as the economics just aren't there and the demographics are changing? New younger farmers won't work for the poor returns and the younger generation of consumers are moving away from beef (and meat in general). We probably will never see the numbers of the past.

[wd40]

fs - I remember those days as well. But let me add.
We had price discovery on both sides of the gate, and no price or farm support programs.
Today we are price takers on one side of the gate and buy retail on the other side of the gate, and price support prograqms that benefit the corporate structure.
Secondly, the auction marts of the early days sold the "odd and sods" the 3rd cut cattle. The good ranch cattle still sold out of the yard. Now we have a auction mart control system that dictates prices and we love em.
In 2004 a retired Cargil packer CFO told me that the typical board room discussion in Wichita (Cargils HO) was "we've kept the beef industry on it's knees long enough, it's time to give them some air"

[grassfarmer]

I wouldn't agree with your auction marts only selling the odds and sods in the past wd40. It looks to me like that still happens to a large degree - auctions selling all the "weaned in the auction" calves from small time producers and the satellite and internet sales creaming off many of the big loads of preconditioned and direct from ranch sales.
It's a dangerous situation for sellers because if you are not careful the price is still established in the auction for the odds and sods and this price used to pay for the good direct from ranch calves. It's a method to pull down overall calf prices.

[kato]

A stampede for $80.00 rented land? Send 'em here, in our area it's more like $40, or $50 tops, unless you've got potato land.

We sell from the yard, and we also sell at the auction mart, and there's a place for both, IMO.

Oddly enough, our best ones go to the market, because they top it, more often than not. We sell our own calves this way, because we can package them up into identical groups, spread the risk, and sell them all at what we consider an optimum weight. When you watch the market over the year, it's up, it's down, it's all over the place, and we refuse to put a whole year's work on the line dependent on the market on one day out of 365.

Usually we use sales out of the yard for the calves we buy, since there are lots of them, and they're hopefully consistent in size and quality. The prices we get for our own calves at the mart are certainly discussed when we negotiate on the yard sales, too, and have helped us get a better price in the past.

The big worry now, for us, is that if cattle numbers fall enough, we may see the auction marts start to shut down. Just as the loss of local elevators was bad for small grain farmers who couldn't put together a semi load of grain, the loss of local auction marts will be bad for smaller cattle producers.

[Kathy]

Have any prices kept in line with actual inflation? I'm preparing information for a history book and found a few receipts from my Dad's dealership when it opened in 1948... at that time repairs work by a mechanic was billed out at $1.50 per hour... now it's what... anywhere from $85 - 110 per hour... There is a huge disconnect between prices and the actual "cost" of services etc.... this is one of the reasons we don't answer the ag census.. as the information provided is used against us, as the primary producer. Manufacturers don't charge cost plus a percentage.. they charge what the market will bare. Manufacturers move their factories to other countries to reap the benefits of lower salaries etc... eg. of bail out of car dealers like GM when they turn around and set up factories with our tax dollar in China...