Last year was a record setting year in the cattle industry with record high prices for calves, feeder and fed cattle, the Choice beef cutout, and retail beef prices. Building on those records will be the challenge in 2014.

Record high calf and feeder prices in 2013 were based on several factors. Corn prices falling from $8 to $4 per bushel, due to the largest corn crop ever, fueled the mid-year surge in calf prices. The nation’s smallest cowherd in more than 50 years left fewer calves for sale, boosting prices. Rising fed cattle prices following the summer market lows boosted demand for feeder cattle. And finally, while much of Texas and Oklahoma remain in some form of drought, late season rains boosted pasture and range growth late in the season. Pasture growth and significant replenishment of hay supplies boosted demand for calves going into fall and winter.

What’s Ahead?

Some of the same factors at work in 2013 will still be working in 2014. Fewer calves born to the smaller cowherd is rapidly showing up as less beef production. Commercial beef production in 2014 is likely to decline by more than 6 percent, to below 24 billion pounds and the smallest amount since 1993.

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U.S. beef exports are expected to remain strong, equaling close to 10 percent of beef production. U.S. imports of feeder cattle from Mexico are expected to remain historically low due to a smaller cowherd and a changing market dynamic in that country.

Higher annual average prices for calves, feeders, and fed cattle are expected in 2014. Calves and feeders may average 10 percent higher, for the year, than in 2013. But the greatest year-over-year price increases will be in the first half of 2014. Fed cattle, for the year, may average at least 5 percent more than in 2013, and may average more than $130 per hundredweight.

Higher calf prices and better range conditions should lead to another attempt at herd expansion in 2014. It’s likely that more heifers were retained in late 2013. Cull-cow slaughter dropped well below the prior year in the latter half of 2013. But, any expansion that begins in 2014 will not result in increased beef production until at least 2016.

Keys for 2014

The key to even higher prices in 2014 rests with growing beef demand. There is ample evidence that beef demand has been growing very slowly over the last couple of years. Beef demand must grow faster to support sustained higher wholesale and retail beef prices. Another big corn crop in 2014 will be needed to keep feed costs lower and sustain calf and feeder prices. And, of course, continued rainfall and drought recovery will be needed for ranchers to hang on to a few more cows and heifers, beginning a herd expansion.

Cow-calf producers will likely see record profitability in 2014 with high cattle prices and lower feed prices. However, producers rebuilding from the drought will face very high prices for breeding females. Feedlot profitability will continue to struggle as record high feeder cattle prices will offset lower feed costs in feedlot break-evens.

Also of interest:

Southwest Ag Economic Outlook

2014 feed grain outlook — will use catch up with supply?

U.S. agricultural trade continues as bright spot