Drought, strong exports keeps herd size in check
By CAROL RYAN DUMAS
At 92 million head, the U.S. cattle and dairy herd is down 2 percent this year and will likely be down at least that much next year, according to industry insiders.
Drought in the Southern Plains and robust exports are tightening supplies throughout the beef industry, said John Nalivka, Idaho Cattle Association marketing chairman.
Lack of profitability in the cow-calf sector had already decreased the beef herd, but drought this past summer caused a further decline, especially in Texas and Oklahoma, said Steve Swigert, ag consultant with the Noble Foundation in Ardmore, Okla.
Before the drought, Texas and Oklahoma were the leading beef cattle states with about 23 percent of the nation's herd.
"The supply of cattle in all sectors will be tight for several years, driven again by the number of cows and in turn, the number of calves," Swigert said.
Exports, at 12 percent of the herd, are keeping beef demand high and adding to tight supplies. With a weak dollar, exports will stay strong or even grow, Nalivka said.
"I have a pretty optimistic view of prices. The caveat is demand has to hold together," he said. "If prices get too high, consumers will balk."
"It will be up to U.S. and international consumers to determine how much they are willing to pay for beef, but I don't think we've seen the highest prices yet," Swigert said.
The boxed beef cutout value for October is about $185 per hundredweight. That value in October 2010 was $155, and the five-year average is $145, he said.
In the cattle sector, Nalivka expects cattle prices to be 5 percent higher next year. If demand stays the same, feeder cattle prices will push to a new record, he said.
Choice steers averaged $114 per hundredweight this year, 19 percent higher than 2010. He projects that price will range from $119 to $124 next year. Yearling steers were $133 per hundredweight this year, 21 percent higher than 2010, and he looks for that price to be $140 next year. Calves, at $153 per hundredweight this year, were up 17 percent from last year, and he expects that price to be $160 next year.
The interesting thing this year was that because of demand, there wasn't much difference in the per head price, he said. All feeder cattle, no matter the weight, were selling for $950 to $1,000 per head.
"That's a sign of the tightening feeder cattle supply; they're going to get bought," he said.
Feedlot owners are likely to have some trouble finding enough cattle to fill capacity, he said.
"I think there's going to be some consolidation of capacity. I think feeder companies with multiple yards will close a yard temporarily," he said.
Swigert also expects contraction in the feedlot sector.
"It will be a challenge for feedlots to find enough calves to be profitable and viable," he said.
At some point, producers will rebuild the heard, but it'll take at least until 2015 to see an increase in beef supplies, he said.