Even if rebuilding of the nation’s cattle herds were to begin today, it would be several years before inventory would reach a significant number, according to an industry economist.
“Even in best case scenario, we will not see additional beef on the table until 2015,” Brett Stuart, an economist with CattleFax, told 1,450 attendees Monday at the 57th Annual Texas A&M Beef Cattle Short Course, sponsored by the Texas AgriLife Extension Service.
Drought through much of the southern U.S. continues to force deep herd reductions. And Stuart said steer and heifer slaughter numbers continue at a steady clip.
The volume of heifers that continue to go into feedlots indicates the beef industry is still “in a contraction phase," he said.
If the beef cattle industry were to start the rebuilding phase today, Stuart said, the amount of time it takes to hold back heifers, have a calf, then make it to the feedlot before finally arriving at the retail meat case would be several years.
However, there are some positive indications for Texas ranchers dealing with a historic drought statewide, he said.
“Supplies are going to be very tight for the next five plus years,” Stuart said. “There are good days ahead; that’s the bottom line.”
He forecasts average fed steer prices at approximately $95 per hundredweight to $125 per hundredweight through 2015, while 550-pound steers are projected to average in the $140 to $170 hundredweight range “for the next several years or foreseeable future.”
Though the Texas drought is taking a toll on ranchers, Stuart offered words of encouragement.
He said global meat production will need to double by 2050 to meet growing demand. Typically, beef cattle markets hit highs during the months of April through May then hit a low point during the fall season. However, with almost a one million head shortfall projected nationally, Stuart said producers may not see the typical season low point in market prices this fall.
Also helping higher cattle prices has been the overall strength of commodity prices, Stuart said.
“We have doubled the amount of volume in live cattle futures contracts,” he said. “Commodities are very sexy to investors right now. There’s a lot of money in cattle futures right now.”
Stuart said institutional funds have to roll those funds in and out of expiring contracts, but warned it’s “easy to scare investment-class money out of our futures.”
Be careful with futures
“If you are using futures to manage your risk, you’ve got to be careful about which way the wind is blowing in Chicago,” he said. “They can get spooked very easy. You’ve got to be careful.”
Corn is another factor affecting cattle markets. Stuart said corn supplies used to be driven by livestock markets, “but it’s now driven by ethanol production (first) and livestock second.”
Additionally, cuts of beef have had changes in pricing.
“If someone would have told me we would have record high beef prices in the middle of a recession and high unemployment rate, I would have never believed it,” he said. “The average retail price of hamburger is $3.80 a pound. Round steak is $4.50 and ribeye is $5 (a pound). It’s a very different market we are operating in right now.”
Stuart said grocery outlets have more room for profit margin with poultry and other meats as opposed to beef.
“We have huge supplies of chicken,” he said. “They keep producing, but we can’t get them to pull back the lever of production. The average retail price (of beef) is two times that of chicken."
As a result, consumers are able to purchase more chicken per pound at the grocery store than beef due to cheaper prices.
"Who gets the feature activity (in the grocery advertisements)? Is it beef, poultry, pork? Right now it’s poultry, since they can buy it cheap and raise prices.”
Restaurant activity continues to increase and Stuart said the restaurant performance index indicates half the beef goes through food service, indicating strength in beef consumption.
“In the last eight months, there’s been strong growth in restaurant index and that’s important in beef demand.”
Beef export demand continues to be steady and strengthening, further indicating a positive cattle market in the future, according to Stuart.
Meanwhile, drought was a popular topic throughout Monday’s cattleman’s college seminars, a feature of the annual short course.
“Drought is the top issue among beef cattle producers in Texas right now,” said Dr. Jason Cleere, AgriLife Extension beef cattle specialist and conference coordinator. “Many of the programs offered at this year’s beef short course focus on the historic dry conditions and how ranchers can best manage their operations and prepare for the challenges ahead.”
During Monday’s general session, Dr. Gary Smith, a former meat science professor at Texas A&M, was recognized for his work in meat research, leading meat judging teams and mentoring students throughout his career at Texas A&M.
The beef short course, held on the Texas A&M University campus at College Station, showcases the latest research and educational programs offered by AgriLife Extension, Texas AgriLife Research and the department of animal science at Texas A&M. The annual event is one of the largest beef education workshops in the country, attracting more than 1,400 cattle producers.