DUBUQUE, Iowa — Cattlemen have experienced dramatic price changes in the last several years.
“For the beef and cattle complex, the biggest adjustment is likely behind us,” said Lee Schulz, assistant professor and Extension livestock economist at Iowa State University.
“All the price increase we saw in 2014 was given back in 2016,” Schulz said during a presentation at the Driftless Region Beef Conference sponsored by the University of Illinois Extension, Iowa State University Extension and Outreach, University of Minnesota Extension and University of Wisconsin Extension.
“The price changes especially on the downside have been more dramatic for the live animal sector than it has been on the wholesale and retail sectors,” he noted.
There are much lower profits today than the last couple of years for cow-calf producers.
“On average, they are below breakeven, but there’s tremendous variability across producers, so a lot of producers are still making money in the current market,” Schulz said.
“Because of the historic profitability, cattlemen bid away profits in the cow/calf sector by retaining more heifers and growing the beef supply faster than we’ve ever done before,” he said.
“How the profitability eroded almost perfectly matches the change in calf prices that started to erode in mid-2015 and continued in 2016,” he explained. “Now we’re back to the 2011 to 2013 levels.”
In 2016, Schulz said, there was a tremendous increase in heifers held for replacements.
“It is the highest number since 1969, and we needed this to rebuild the beef cow herd,” he noted. “This is the youngest herd and one of the most productive herds in the history of the data.”
Pastures for the majority of the U.S. are in good condition.
“The only region we’re concerned about is the Southeast because droughts that occur in the Southeast move Northwest, and that’s the Corn Belt,” he said. “And that’s consistent with La Niña conditions.”
Schulz expects beef cow numbers to increase due to several factors including low cull cow prices.
“If I bought a replacement female at record prices, one way for her to pay back is to stay in the herd for several years,” he explained.
“The beef cow slaughter numbers are up, but the ones that are being culled are beef cows that made sense at the 2014 and 2015 prices,” he said. “Now we’re getting back to traditional culling and replacement levels.”
In addition, more heifers are now going into feedlots.
“As returns have gone back to lower levels, we’re seeing a lot more heifers enter the feedlot, which has helped the feeder cattle supply,” Schulz said.
The last four cattle on feed reports, released by the U.S. Department of Agriculture, have been bullish.
“The number of cattle on feed is lower because cattlemen have been aggressively marketing cattle so they are very current in feedlot inventories,” Schulz explained. “That has set up a relatively tight first quarter in 2017 for the finished cattle supply and strengthened the margins for feedlot producers.”
He expects cattle feeders will see profits for the first six months of 2017.
“Those profits could be locked in using the futures market, forward contracts or a put option,” he noted. “It is a very opportune time for producers to protect profits.”
Beef exports during 2016 were up significantly thanks to South Korea and Japan, Schultz said.
“The percentage of our production exported has never been over 12 percent compared to pork at 26 percent and poultry exports higher than beef,” he said. “Pushing exports above that is an opportunity to grow demand.”
Growing beef exports allows U.S. cattlemen to increase the value of each heifer and steer they are producing.
“Some products have almost zero value in the U.S., but considerable value in the export market like sending livers to Egypt,” he said.