Beef market prices, for numerous reasons, remain at record highs and will go higher before cooling off—but likely not before the end of the decade.
“High prices cure high prices,” says Derrell Peel, Oklahoma State University Extension livestock marketing specialist, “but with the current situation it will take the rest of the decade to produce our way to lower prices.”
Peel, speaking at the annual OSU Rural Economic Outlook Conference in Stillwater in late October, said cattle producers’ major concern for the time being is to produce and sell as many animals as they can. He sees no significant market risk. “But it is important to have something to sell. Keep the animals alive and growing. The key to success will be cost of production.”
Per head return for cow-calf operations, he added, “is unprecedented. Produce and sell all the calves you can.”
In brief, Peel expects the 2015 beef market situation to see:
- Strong prices for cattle and beef;
- Record cow-calf returns;
- Value of gain for stocker production;
- Low market risk but some production risk, including potential for drought;
- Market squeeze for feedlots and packers;
- Challenges to beef demand as prices continue to rise; and,
- Continued herd rebuilding “if no drought.”
Cattle numbers across the country are at the lowest point since 1951, Peel said, in spite of attempts to rebuild back in 2005 and 2006. That attempt was thwarted by “the ethanol effect,” high fertilizer prices and other cost of production factors. The recession also limited consumption and stymied growth.
That setback followed a drought-related herd reduction from 2003 and 2004.
Cattle numbers have not caught up and have decreased even more with the long-term drought that began in the fall of 2010. Peel said the industry currently needs 1.9 million head just to get back to pre-drought numbers. To meet potential demand, producers might need to add as many as 4 million head. “Rebuilding to that level will be a slow process. Even if we start expansion this year, it will take time. We have tried to expand before but drought prevented it.”
He says heifer retention will be higher this year, but cow slaughter has also been high. With current projections, Peel predicts it will be 2017 before the industry gets back to cattle numbers on hand when the drought began. “We could be expanding for the rest of the decade, and I think the market will support that expansion. But we could see continuation of the drought into next year. It is a concern.”
From Jan. 1, 2007, through 2014, cattle numbers across the United States declined by 11 percent. Texas numbers dropped by 25 percent; Oklahoma lost 12 percent. Much of the Midwest and key southeast states (Georgia and South Carolina) had double-digit losses.
Declining pasture acreage
Pasture acreage loss in the Midwest and Southeast has been significant. Acreage reduction for pasture is much less in the Southwest and West, only down 1.4 percent in Texas and 4.4 percent in Oklahoma. New Mexico and Colorado show slight pasture acreage gains.
Range and pasture conditions across the nation have improved compared to last year and the five-year average. “But we are still vulnerable to drought,” Peel said.
Peel said much of the herd reduction has come from the Midwest and Southeast where farmers responded to crop prices and displaced pasture. The Southwest has also seen significant cattle number reductions, mainly because of drought. When herd rebuilding gets going, he says, it will take place in drier areas of the country, places where crop production is less certain.
Feedlot and packing facility operators may have difficulty making money. “We’ve had excess feedlot and packing capacity for 25 years,” Peel said. Current cattle numbers make that excess more apparent. “If demand is there, managers can make it work, but these facilities are vulnerable with high break-even points.”
Prices to cattlemen and meat prices for consumers will be higher. “Commercial beef production to date is down about 6 percent from the 2008-2012 average,” Peel said. “That will be a challenge from a supply standpoint but should result in a higher average price for the next few years.”
Consumers are already seeing a big jump, near $6 per pound for retail beef in September, almost $1 higher since January. “That’s a sharp uptick,” Peel said, “but consumers are still buying.”
Pressure on beef may increase over the next 24 months, however, although pork prices are also expected to rise and high beef and pork prices have not “helped chicken prices as much as that industry had hoped.”
Peel said exports have moderated and will likely decrease next year because of higher prices and limited supply. Imports also will be moderate. Peel expects some feeder cattle imports from Mexico but nothing sustainable either from there or Canada because “the numbers are not there. There are not a lot of cattle in North America.”
Peel says he doesn’t expect the level of price increase next year that has occurred recently but a continued higher trend “for quite a long time.”