Current conditions in the beef industry will bring banner year for some, red ink for others
March 9, 2012
Like many other beef-cattle producers these days, Larry Crossiant couldn’t think of too much to complain about out at his red angus ranch near Briggsdale earlier this week – not with another sale just around the corner.
Sure, there’s the headache of feed, fuel and other input costs that are as high as ever, he said, but so too are the prices willing to be paid for Crossiant’s cattle – sitting at record highs recently, in fact, for he and other producers.
“I think 2012’s is shaping up to be a good one,” he said, referring to a year in which experts predict Crossiant and other beef cattlemen could bring in all-time incomes. “The last couple years have been good ones, too.
“We had seen some pretty lean years before that though … so I suppose we were finally due for some good times.”
But 2012 won’t be a banner year for everyone involved in the beef industry, a fact he and others acknowledge.
Agriculture has never been generous in offering win-win scenarios for farmers and ranchers, with the industry each year – assisted by the weather and markets – designating financial victors, losers and in-betweeners, and then many times reversing the roles some time down the road.
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For the beef-cattle sector in 2012 – a year in which the U.S. herd is estimated to be its smallest since the 1950s, and prices for cattle and beef are at record highs and expected to continue climbing – it will certainly be no exception.
And the implications are huge for many in Weld County, where local producers collectively have nearly 50,000 head of beef cattle, according to the 2011 Colorado Agricultural Statistics book, and where some of the nation’s largest feedlots and beef packers operate.
Additionally, the county has about 250,000 residents – many of which are consumers who eat the final product.
While ranchers raising beef cattle are likely to fair well this year, the feedlots that buy those cattle to feed and beef them up, along with the beef packers who buy the fed cattle from the feedlots, will likely struggle, experts say. And in the end, a higher price will be paid by beef eaters at grocery stores and restaurants.
“It’s going to be awfully tough for us to make a profit this year,” said Steve Gabel, owner of Magnum Feedyards near Eaton, which has about a 25,000-head capacity.
In addition to paying a high price to bring the cattle to their feedlots, Gabel and other feeders are also dealing with high feed costs, and aren’t sure they’ll be able to sell their fed cattle to beef packers at a high enough price to recoup those expenses.
“We have to borrow twice as much money to operate now as we did five years ago,” Gabel said. “That makes things pretty darn tough.”
Gabel said in tough years, which have occurred from time-to-time during his long career in the industry, one of the best things he and other cattle feeders can do is try to put their livestock on less-expensive feed, but without altering their diets too much.
“There’s only so much you can do,” Gabel said.
Those who follow the industry closely agree with Gabel in that 2012 could be a tough one, especially for the feedlots.
“It could be a red-ink year for a lot of feeders,” said James Robb, director of the Livestock Information Marketing Center in Denver, which is administered by Colorado State University.
As was explained by Robb and other experts, the current conditions in the beef-cattle industry were set in motion a few years ago, when costs to feed the livestock were increasing – driven by the ethanol industry’s increased demand for corn – and while cattle prices were in a slump.
With the industry down a bit, farmers and ranchers, about six or seven years ago, began liquidating their herds – selling more head into slaughter than they were keeping onhand for breeding to expand their herds. Cow slaughter in 2010 and 2011 was at its highest level in nearly 15 years.
But at the same time, demand for beef – while stagnant in the U.S. during the recession – had been growing in developing countries, such as China, where a middle class with disposable income is growing every day.
Overall, U.S. beef exports in the past three years have increased 36 percent.
The increased demand for beef from abroad, combined with the reduction in the U.S. cattle herd – which was kicked into overdrive by the record drought in the southern plains last year that forced many farmers and ranchers to sell their herds into slaughter early because they couldn’t feed them or provide them water – has brought on the current record prices for cattle and beef.
And prices for both are expected to go higher before they go lower.
Because the profit incentives are currently so great, farmers and ranchers are now keeping more cattle back home for breeding and expanding herds. In the near future, that ongoing trend is expected to further reduce the amount of cattle available for slaughter, coming at a time when the globe wants its beef, all of which means prices for beef and cattle will only increase.
Some said the large demand for beef from foreign countries might keep prices high enough that it could help beef packers make a profit this year, but Robb still said he anticipates 2012 to be one of the worst for that sector in recent years.
Officials from JBS USA in Greeley, one of the largest beef-packing facilities in the world, were unavailable last week to comment on the company’s outlook.
Robb and others both said the current conditions will likely stay in place for a while, probably going into 2013.
However, some relief could come for feedlots later this fall, they said, when U.S. farmers are expected to harvest a record corn crop of about 94 million acres, a supply that would help bring down costs for corn and therefore livestock feed prices.
Also, a little down the road – with beef-cattle producers now expanding their herds – the larger supply of the animals could bring beef-cattle prices back down.
For now though, producers, like Crossiant, will take advantage of their good fortune.
“I’ll use the good times now to pay down some debt, get ready for things to go back the other way,” said Crossiant, who sells about 100 cattle into feedlots each year, usually, going to JBS, or Cargill in Fort Morgan. Crossiant also operates a small feedyard out at his property, but says he’ll have to watch things closely out there, not sure how many cattle from other producers he’ll be able to buy this year. “You just know it’s all going to change some time down the road.”