CattleFax analyst speaks positively on cow/calf sector’s future
Jackson – According to CattleFax analyst Breyt Stuart, today’s beef prices are being driven by international demand and hamburger demand, not ribeye steaks, and he predicts the next five years to be extremely profitable for cow/calf producers who take advantage of tight supplies.
Stuart attended the Wyoming Stock Growers Association’s 2012 Cattle Industry Convention and Trade Show in Jackson, speaking on June 1.
“In 2000 the all fresh retail beef price was $2.75 per pound, and today the average price is $4.72,” he said. “Americans love beef. When it’s in short supply, they’ll chase it to get it.”
In 2011 the average price of chucks was 49 percent higher than 2006, with the highest increases in chucks, 90s trims and rounds.
“They’re what have carried this bull market,” said Stuart. “Chucks and rounds can both be converted to trim, and they’re two of the most exported cuts – rounds to Mexico and chucks to Asia.”
Looking at long-term cattle prices for 550-weight steer calves, Stuart said the average has bounced up to the $1.80 per hundredweight (cwt.) range.
“Since 1980 there have been time periods when we put in new levels, with resistance at the high end and support at the low end. Today, maybe $1.35 is support and $1.80 is resistance,” he said. “I don’t think we have enough data points to tell yet, but that’s a fair assessment of where we’ll spend the bulk of the time the next three to five years.”
Of the seasonal 550-weight steer calf trend, Stuart said the market has continued to follow it, with October and November being the bottom of the market in the 20-year index. However, he added that, in the last few years, when supplies have been tight, the market hasn’t seen the trough.
“Last year, the year before and this year, when feeders are aggressively chasing cattle, the market is more stable. I wouldn’t be as terrified about getting prices booked early this year,” he recommended. “I don’t think we’ll see the trough this year.”
Keep an eye on corn
Corn prices are always a major factor in the cattle market, and Stuart mentioned that, right now, corn is as cheap as it’s been in 15 months. However, he cautioned that there’s still plenty of time for a drought to spring up in the Midwest, or for a “crazy Chinese corn buy.”
“We could run a dollar to $1.50 back up on corn really fast,” he said. “Then the bid price on our calves goes down the equivalent dollars per head, so keep an eye on corn when you think about what kind of bids you should take this fall for calves.”
“For 2012 we’re looking at a low around $4.60 and an average of $5.80, and volatility is the key,” said Stuart. “There were fantastic planting conditions and it sounds like the corn world believes we’ll put mountains of corn in the bins this fall. If I was dependent on corn, I’d be ambitious in taking advantage of the market today, and get some corn picked up, because the price can move really quickly.”
“There’s a lot of volatility caught up in grain markets, so manage for the margin. There is no room to guess on the markets – hedge and use the volatility to your advantage,” he continued. “With this volatility and capital requirements, you have to be more disciplined.”
Speaking of fed cattle, Stuart said they’ve jumped to a new plane over where they’ve been the last 10 years.
“Our consensus is that fed cattle will trade from $105 to $135, based on tight supplies and global demand,” said Stuart.
After calculating prices and cow costs, Stuart gave an average estimate cow/calf profit/loss per head, listing the cash margin on calves for 2012 at $300 per head.
“Will that buy expansion in the cowherd?” he asked. “If we have green grass and profitability, we will expand. There’s no doubt we’ll expand the U.S. beef cow/calf herd over the next four to five years.”
Holding back heifers and cull cows will further tighten the beef supply, and Stuart said, “The next five years will be the best five years we’ve ever seen in the cattle world, especially on the cow/calf side.”
To take advantage of the market, Stuart said to think about opportunities to increase efficiency.
“Invest money in efficiency,” he stated. “If you need a calving barn, now’s the time to build it. If you need to hire a night herder, now’s the time. Spend some money, because the calves are worth a lot of money.”
Regarding decisions on cull cows and replacement heifers, Stuart said producers will have to sharpen their pencils and do the math to figure out how to expand.
“Don’t cheat on genetics, don’t cheat on vets or anything else to take care of your cattle, because they’re worth too much money to lose or to gamble with,” he said.
“It’s an exciting time to be in this business, with these opportunities for the ranching world. Here at home in Wyoming there are great opportunities ahead,” said Stuart.
Christy Martinez is managing editor of the Wyoming Livestock Roundup and can be reached at email@example.com.
Stuart: hay prices will be high, but not as high
In addition to closely watching beef and corn markets, CattleFax analyst Brett Stuart says he’s also watching alfalfa.
“With the winter we had, there is hay everywhere,” he said at the Wyoming Stock Growers Association’s 2012 Cattle Industry Convention and Trade Show in Jackson on June 1. “I see more hay in stackyards than I’ve seen for a long time, but the March 1 USDA hay inventory said hay stocks are below a year ago.”
He said that’s due, in part, to alfalfa cubing for exports.
“We’ve shipped more in the first quarter this year than we did in eight months last year,” he said. “Export demand for cubes is very high, and export demand is not what I see when I look around and see hay in stackyards.”
“I was expecting prices to crash, but I don’t think they will,” he continued. “I think they’ll be supported well, but not as high as they were last year. They may be in the $170 to $160 per ton range this year – which is still pretty high from a historical level, but not as high as a year ago.”
China drives world ag industry
“The average price of food in China is 800 percent higher today than 10 years ago,” said CattleFax analyst Brett Stuart at the Wyoming Stock Growers Association’s 2012 Cattle Industry Convention and Trade Show in Jackson on June 1. “Anything we can do to get our product into that country will serve us huge dividends in the future.”
Currently, 18 percent of all U.S. beef, pork and chicken is eaten overseas, and 23 percent of all pork is exported, and that’s mostly because of China.
“We still can’t ship beef to China, but those days will come. Anything we can do to get beef to China is where we ought to spend our time,” said Stuart, noting that China will also import a significant amount of U.S. corn this year.
“In the last five years, China has needed five million more tons of corn each year. For the last 20 years they’ve been 100 percent self sufficient, but 75 percent of their corn growth was driven by acres, and 25 percent by yield. Every year they need another 2 million acres to keep up. This year they’ve booked 4.8 million tons of U.S. corn, and that tells me that last year’s crop was flat. Next year they’ll need 5 million more tons than this year. That will continue to pressure these corn markets,” he noted.
Of the 8 billion bushels of corn that China produces, Stuart said 95 percent is harvested by hand.
“They’re on the streets, husking the kernels off, drying the corn on the pavement and sweeping it up to sell in bags,” he said.