What is in this article?:
- Cattlemen show surprise interest in expansion
- Feed prices expected to moderate
- The big picture is that beef cow numbers dropped 3 percent last year, and this will mean a smaller calf crop in 2012 that will keep cattle slaughter small for 2013 and 2014.
- If heifer retention continues to grow in 2012 and 2013, beef supplies will not increase until 2015.
- So the modest heifer retention now is actually a price-enhancing factor in the short-run with the bearish implications not occurring until 2015 and beyond.
Feed prices expected to moderate
In addition, feed prices are expected to moderate if 2012 U.S. yields are close to normal.
Beef cows have become very valuable property because of the shortage of beef that will be experienced in 2012 and beyond. This was demonstrated in the Cattle report by a 1 percent increase in the number of heifers being retained to go back to breeding herds, the first increase in heifer retention since feed prices began increasing.
"The drought continues to retard expansion in Texas where heifer retention is down 10 percent and in Oklahoma where retention is down 16 percent.
“However, the expansion of the breeding herd appears to be under way in Nebraska, South Dakota, Colorado, Wyoming, and Iowa where retained heifers are up by double-digit percentages," the economist said.
What does this first hint of expansion mean to cattle prices in 2012? Although some may see the early signs of heifer retention as bearish for 2012 prices, the opposite is most likely true. This is because the retention of heifers reduces slaughter supplies and beef supplies.
"Because of the reduction in the cow numbers, the calf crop will be down over 2 percent in 2012. If heifer retention continues to grow in 2012 and 2013, beef supplies will not increase until 2015.
“So the modest heifer retention now is actually a price-enhancing factor in the short-run with the bearish implications not occurring until 2015 and beyond," Hurt said.
Will cow-calf operations continue to expand in 2012? They probably should wait for two conditions to develop. The first is continued improvement in moisture conditions in the southern Plains.
Hurt says there are mixed signals for that region. Rainfall for much of the southern Plains has been above normal for the past couple of months.
However, the National Oceanic and Atmospheric Administration (NOAA) continues to forecast that drought conditions will persist through at least the spring for that area, and that drought will continue, or develop, for much of the southern tier of states from California to Florida.
"The second condition is to wait for an assurance that the 2012 U.S. crops will have favorable yields. This is because NOAA is forecasting that a region of the western Corn Belt will continue to be very dry into the spring, which raises concerns for corn and soybean meal prices. Higher feed prices would tend to depress calf prices," he said.
The first signs of expansion do little to change the bullish cattle price forecasts.
"Look for finished cattle prices to push into the higher $120s this spring, then moderate to the mid-$120s this summer, and finish the year near $130. Spring highs in 2013 could climb to the low $130s."