Cattle markets looking up as ranchers come off a tough three-year dry spell
May 11, 2017
In the past three years, cattle ranchers have been hit hard with drought, low market prices, high input costs and, most recently, tough weather conditions and natural disasters. Cow/calf producers scooped up peak prices in 2014, making up to 10 times their normal profit. The following year, prices came down until they hit a major low last fall.
"The cattle industry at all levels has been through a roller coaster," said Derrell Peel, Oklahoma State University agribusiness professor. "We had a very pronounced low in cattle markets, October was the worst of it. We expected that but the low was too low in my opinion, but it had to find a bottom and then recover."
Coming into 2017, economists were confident in their position in the markets as they were beginning to recover, Peel added. They did not expect for the market to increase so quickly or so much.
"There were reasons to expect some strength to this potential market but it has gone well beyond that," Peel said. "We have seen a big run-up in boxed beef prices at the wholesale level, fed cattle prices and feeder cattle prices."
Peel thinks the increase is largely due to the increased demand for beef from consumers, both domestic and international.
"Getting some more export markets opened up is huge," said Niels Hansen, Wyoming Stock Growers Association president. "So much of our product is not wanted in America but other countries like the variety meats that we do not use."
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Hansen cited many different changes both within and outside of the beef industry for the increase in both consumption and exports. There is no single factor leading to the increases, he added.
"Australia is recovering from a drought so they have less beef being produced and so they are not able to export as much," said Glynn Tonsor, Kansas State University agricultural economics professor. "This gives us an opportunity to increase our own exports."
BETTER THAN EXPECTED
Tonsor predicts cow/calf producers will have a much better year than originally predicted, the same hopefully holds true for feedlot producers. In the U.S., 2015 was the worst year for feeding cattle with 2016 serving as a transition year.
"We have kind of rebalanced things, there is not a lot of money just laying around to be made but when things are managed correctly there is potential for money to be made," Peel said. "It is not typical for all sectors of the industry to be making money at the same time, that is pretty rare."
Some producers are selling their cattle now rather than waiting for the fall when their weights will be higher.
"Feedlots have had a long run of consistently loosing money," Hansen said. "When they start making money again it will trickle down to the stocker and cow/calf producers."
Optimism within the industry as well as throughout the country has been attributed for some of the positive changes in the beef sector.
"Any great change comes from the top down," said Jim Wilson, owner of V Ranch in Thermopolis, Wyo. "With Trump in there it is obvious that he is more for the working person. It all comes down to a little more optimism from everybody in the whole system."
The positivity also rains down with the added moisture in the Rocky Mountains as well as California. Some producers who use public land for their winter grazing already have their 2018 forage made and it is only May.
"Our reservoirs are already full, some parts of Wyoming are up to 200 percent of their normal levels," Wilson said. "The moisture is unbelievable in the high country. The gains on our cattle should be better because of this."
Some producers had to decrease the size of their herds as their resources could not adequately sustain the grazing intensity throughout the droughts.
NUMBERS ARE GROWING
"We are still in cyclical expansion, so cattle numbers are still growing," Peel said. "They grew significantly in 2016 and we think they are continuing in 2017. We are going to see feeder supplies continue to grow probably well into 2019."
With employment rates decreasing in the U.S., consumers are more readily willing to spend money on high-quality beef products.
"The macroeconomics situation is the backdrop for beef in the U.S.," Peel said. "In addition to decreased unemployment rates, gasoline prices have not been too bad. This directly effects household incomes when it comes to buying decisions."
The increase in demand results in an increase in supply, this is one of the leading risk factors within the industry.
"There is still some potential for weaker prices in general as we approach what I call a supply challenge," Peel said. "Most of the risk right now is external to the cattle industry. There is a lot of uncertainty about what is going to happen in terms of policy over the next few months."
Peel described 2017 as a "sideways year" for market prices, although he said they are balanced and a bit more stable.
"We will see some seasonal pressure as we go through the year," Peel said. "Calf prices will be lower in the fall seasonally. But if they follow the seasonal pattern from where we are now, they will still be pretty darn good."
-King is a freelance writer from Oakland, Neb., and a graduate student at Oklahoma State University in Stillwater. She can be reached at firstname.lastname@example.org.