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Changing Demands, Changing Prices
December 2006
Pat Hogue - Okeechobee County Extension, Livestock Agent III
Over the course of the last couple to few months, several factors have all come in to play that normally indicate that in the months ahead, prices for calves are going to start a downward trend. Anyone who has ever heard Randy Blach of Cattle-Fax do a presentation on the forces or factors that come in to play know that increasing corn prices and declining corn supply, increasing demand for other protein source by consumers, and high prices at feedlots and packers that result in per head losses over a period of time all seem to come together to ultimately result in lower calf prices making their way down the supply chain ultimately to cow-calf producers.
Estimates by the USDA now indicate that this years corn supply is going to be at least 3 percent less that last year due primarily to lower per ear weights resulting from drought and moisture stress in numerous corn producing areas. Coupled with that, there is an increasing demand for corn for ethanol production competing with corn for animal feed, and corn prices have taken an over $.55 per bushel jump over the last three months. Demand for corn for alternate fuel production, such as ethanol, is expected to continue rising annually, and an expected increase in corn production acreage of possibly 10 million acres is expected beginning next year. What long term effect the increasing demand for corn for alternate fuels coupled with an expected increase in production acreage has long term on corn prices can only be guessed at now and depends on acceptance of ethanol and other alternate fuels competing for supply, but over the next several months at least is expected to result increasing corn prices.
Since corn is the basis for feed rations in feedlots, higher prices means higher production costs both to the feedlots and packers and usually results in lower prices they are willing to pay for cattle. Usually it takes a few months for cost losses in feedlots and packing houses to trickle down to cow-calf producers, but with continued losses in these two segments of the beef production chain losing money, ultimately we can expect lower prices in the months to come. The last few months, packers have seen losses per head average around $33.50 and losses for October are predicted to be over $19.00 per head. Predicted losses for the coming months include: $29.00 for November, $24.00 for December, $16.00 in January, and $40.00 in February. Only a $9.00 loss is predicted for March, and predictions are that in April profits will begin to show again, but this is a result of three of the four major packers cutting production significantly beginning this month. Tyson Foods, National Beef Packing and Swift and Co. plan to cut production to 32 to 37 hours per week form previous runs of 40 to 48 hours to help cut production and costs significantly.
Cattle on feed continues to be stable, but the number of heifers on feed has seen a significant rise the last couple of months also. We had been in what appeared to be a herd build up again with fewer heifers going on feed, but continued drought across western states has resulted in more heifers going to market.
Couple with these indicators, a recent survey of consumer preferences shows that demand for chicken is increasing and beginning to cut into demand for beef even though beef is still the preferred protein of choice. Usually this is an indicator that prices paid by consumers for beef has reached the point where they start to buy more of the other protein sources because they are cheaper.
Although predictions are not dismal, it would indicate that we can probably expect a down turn in calf prices over the next few months, and depending on all these and other factors that may come in to play, we are probably looking at lower prices than we have seen in the months to come, and depending how all these factors play out together, how long and deep the down turn may be.