Is There Life After High Grain Prices for the Cattle Industry?

Size: px
Start display at page:

Download "Is There Life After High Grain Prices for the Cattle Industry?"

Transcription

1 Is There Life After High Grain Prices for the Cattle Industry? Derrell S. Peel Breedlove Professor of Agribusiness And Livestock Marketing Specialist Oklahoma State University

2 Mil. Head 140 JANUARY 1 TOTAL CATTLE INVENTORY U.S., Annual = 92.6 Million Head -1.4 Percent Livestock Marketing Information Center Data Source: USDA-NASS C-N-01 01/28/11

3 Mil. Head BEEF PRODUCTION vs. CATTLE INVENTORY Inventory on January 1, U.S. Commercial Beef Production Bil. Pounds Total Cattle Inventory Livestock Marketing Information Center Data Source: USDA-AMS, Compiled & Analysis by LMIC M-S-23 05/13/11

4 Beef Production and Marketing System Retail Institutional Export Wholesale Slaughter/Fabrication MARKETING Feedlot Stocker PRODUCTION Cow/Calf

5 It is often said: The Beef Industry Can Survive High Corn Prices Better Than the Pork and Poultry Industries True statement? What are the implications for the beef industry?

6 Cattle Industry Evolution 1960s-2006 Built on cheap energy and cheap grain Increasingly grain intensive Limited stocker role (more calves in feedlots) Influence on production systems Animal genetics (carcass weights) Type and use of technology Industry infrastructure (location and capacity) Cattle feeding Meat packing

7 $ Per Bushel 7.00 NATIONAL AVERAGE CORN PRICE Crop Year, Received by Farmers Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Forecasts by LMIC G-NP-03 07/26/11

8 U.S. CORN DISAPPEARANCE AND STOCKS Crop Year Bil. Bushels Stocks Exports Food, Seed & Industrial Feed & Residual Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Analysis by LMIC G-NP-12 05/11/11

9 Mil. Head 43 JANUARY 1 FEEDER CATTLE SUPPLIES Residual, Outside Feedlots, U.S Livestock Marketing Information Center Data Source: USDA-NASS C-N-30 01/28/11

10 Mil. Head JANUARY 1 FEEDER CATTLE SUPPLIES AND CATTLE ON FEED Mil. Head Feeder Supply COF (right axis)

11 56% 52% 48% 44% 40% 36% 32% 28% 24% Cattle on Feed as a % of Feeder Supply, January

12 Economic Signals In the Cattle Industry

13 Beef Industry Market Coordination Price Signals to Coordinate Production Sectors Level of Production Change Production System Allocate Forage Resources Grain versus Forage Use Timing

14 Feeder Cattle Prices, Average, OKC, January 1992-December $/cwt Weight

15 Weight (lbs) Feeder Cattle Prices, Average, OKC, January 1992-December 2010 Average Price ($/cwt.) Change from Previous Weight Group ($/cwt.) Price Change Per Pound ($)

16 Stocker Value of Gain, Average Weekly, Weight Gain Beg. Weight Weeks lbs ADG>> lbs ADG>> lbs ADG>>

17 Feedlot Cost of Gain Kansas, $/cwt

18 Feeder Cattle Markets are where Cow- Calf, Stocker and Feedlot Sectors are all Coordinated Price Stocker Purchases Cow-calf Sales PW 1 Stocker Sales Feedlot Purchases Changes in the slope and Intercept of the feeder price-weight line change the economic signals to cow-calf, stocker and feedlots sectors Weight

19 $ Per Cwt ANNUAL AVERAGE CATTLE PRICES Southern Plains lb Steer Calves lb Feeder Steers Fed Steers Livestock Marketing Information Center Data Source: USDA-AMS, Compiled & Analysis by LMIC C-P-06 08/01/11

20 $ Per Cwt ANNUAL AVERAGE CATTLE PRICES Southern Plains lb Steer Calves lb Feeder Steers Fed Steers Livestock Marketing Information Center Data Source: USDA-AMS, Compiled & Analysis by LMIC C-P-06 08/01/11

21 Price ($ $/cwt) Price-Weight Relationship Medium/Large No. 1 Steers weight (pounds) 'APR $50 Avg+$30

22 Steer Price, Total Value and Value of Gain, April 2005, Oklahoma City. Weight (lbs) Average Price ($/cwt.) Total Value ($/head) Value of Gain 425 lb. Beg. Weight ($/lb.) Value of Gain 525 lb. Beg. Weight ($/lb.) Value of Gain 625 lb. Beg. Weight ($/lb.) Best stocker value but is low relative to feeder price

23 Weight (lbs) Steer Price, Total Value and Value of Gain, April 1996, Oklahoma City Average Price ($/cwt.) Total Value ($/head) Value of Gain 425 lb. Beg. Weight ($/lb.) Value of Gain 525 lb. Beg. Weight ($/lb.) Value of Gain 625 lb. Beg. Weight ($/lb.) Stocker value is high relative to feeder price for a wide range of production

24 Price ($ $/cwt) Price-Weight Relationship Medium/Large No. 1 Steers weight (pounds) 'APR $50 Aug-11 Avg+$30

25 Price ($ $/cwt) Price-Weight Relationship Medium/Large No. 1 Steers weight (pounds) 'Apr-2005 'Aug-2011

26 Weight (lbs) Steer Price, Total Value and Value of Gain, Jul/Aug 2011, Oklahoma 7-Market Ave. Average Price ($/cwt.) Total Value ($50/head) Value of Gain 425 lb. Beg. Weight ($/lb.) Value of Gain 525 lb. Beg. Weight ($/lb.) Value of Gain 625 lb. Beg. Weight ($/lb.)

27 Cattle Markets are Providing Twin Signals to Producers at the Current Time Increase Calf Production Herd Expansion May change in 3-6 years More Stocker Production Keep feeder cattle on forage longer More flexibility Likely to be permanent Both Signals Imply Increased Demand for Forage Different From History When Cow-Calf and Stocker Production was a Tradeoff

28 Next Years Agriculture is being asked to do more of everything Biofuels Global food demand with more restrictions and challenges Environmental limitations Anti-science/anti-commercial mentality Social agendas that threaten agriculture Resource pressures in agriculture More competition among crops for acres More competition from crops for forage and hay production High and volatile input prices

29 Permanently Higher Grain Prices is a Game Changer for the Beef Industry Change from grain intensive to forage intensive to maintain competitiveness Must emphasize ruminant advantages Enhanced role for stocker production Influence on production systems Animal genetics (change animal size?) Type and use of technology? New forages? New forage systems? Industry infrastructure (location and capacity) Different feeding industry? Regional shifts in cattle feeding, cow-calf and stocker production

30 The Beef Industry Can Survive High Corn Prices Better Than the Pork and Poultry Industries True, but with implications Ruminant flexibility is an advantage only if the industry changes to capitalize on those capabilities Failure to change is a disadvantage Ruminants will always be the least efficient user of grain

31 The Industry Faces New Questions For the last 4-5 decades: How can we get cattle to use more grain? For the coming decades: How can we produce high quality beef using the least amount of grain? There are many unknowns about how to do that but one thing is certain it will involve a bigger role for the stocker sector!

32

33 The Weekly Newsletter From OSU Animal Science and Agricultural Economics Send to