Rabobank’s US-based senior industry analyst Don Close said late 2014 and early 2015 have represented a “phenomenal” market for beef rearers. It bought with it increases in the price of replacement stock and a lot of operators were only now starting to pull increased profit returns while also lifting numbers in response to improved profitability.
This year’s 2015 Cattle Industry Convention had delegates being reassured the strong prices experienced last year will continue.
In 2014 the futures prices for live cattle rose more than 20%, representing one of the best performing commodities on the Chicago Mercantile Exchange. It came as consumers faced a surge in retail beef prices of 12.1%, pushing to a live cattle price record of US$1.71 a pound late in 2014. Consumers faced prices of US$6 a pound for beef.
“These prices have put a lot of pressure upon retailers, end users and grocery margins. Grocery stores were not increasing prices as rapidly as the wholesalers, instead sacrificing margins so they are now holding prices high just to get their margins back,” Close said.
The USDA report released in January revealed a solid increase across all types of cattle particularly in beef cow numbers which had increased 2% or 600,000 head, he said.
“This was a faster growth rate than the market had been anticipating and indicates profitability signals are being sent through the system for future growth and returns.”
This has been helped by greater confidence in feed supplies, in turn helped by no widespread adverse climatic events such as the drought that had such a devastating impact on Texas cattle numbers in 2011-12.
“Over 2013-14 it was not really robust but it was certainly improving – mother nature has helped with the economics too.”
While it has not gone away the Californian drought has not resulted in cattle numbers taking a significant hit.
“It is still very, very dry despite the rain that fell in Northern California but a lot of feed has been trucked in from out of state to hold those numbers up.”
In addition significant numbers of feeder cattle are being trucked out of state for finishing.
Latest issues within the industry are around the ongoing strike issues at West Coast ports, inflicting significant stock losses on shippers of chilled product. The American Meat Institute estimates US$30m of losses are being shared among beef and poultry producers.
However, Close said when viewed in context of the market’s overall positivity the strike is more of a glitch than a game breaker. As capital stock numbers slowly start to rise beef exports from the US are following suit. Beef exports are running at about 11% of total production.
“We are seeing that head towards a level they were at prior to the BSE outbreak in 2003.”
But New Zealand exporters do not need to see the growth in the US behemoth as a threat but rather a foundation for continuing solid demand for grass-fed NZ beef to compliment domestic grain-fed supplies. Late last year representatives from Costco hung the “open for business” sign out to NZ farmers, telling them the fourth largest retail company was on the hunt for more NZ beef.
More than 35% of the company’s grinding beef for burgers was bought from NZ through Affco, ANZCO and Greenlea. The company also reported growing interest in grass-fed beef within the US by consumers.
While cattle numbers start to inch upwards in the US the location of those cattle is also undergoing a shift.
“We are seeing some relocation of numbers with some migration northwards on grounds of supply and availability of feed,” Close said.
The impact of drought on traditional cattle states like Texas has been noticeable. Cattle numbers in Texas have slumped 15% since 2009, Tennessee is down 7% and New Mexico has dropped by 13%.
Meantime, some non-traditional states have experienced strong lifts. Idaho is up 11%, Washington up 10% and Virginia up 15%.
“But the other interesting thing we are seeing is the greater incorporation of dairy into the beef sector for calf supply.
“It had been a kind of on again-off again set-up until the last few years it has become a lot more integrated.”
As in most aspects of modern food production feedlot systems are getting bigger and a farmer who may have run 2000-3000 cattle a decade ago would be running 10,000-15,000 today.
Underpinning the ability of feedlots to expand is a significant reduction in corn prices post the 2011-12 drought.
“Corn futures are putting prices around the US$3.80 a bushel. Given the amount of precipitation we have had in the form of snow this winter expectations are that moisture levels will be good for spring sowing season and those lower prices will continue.”
Close expects the slow but steady rise recorded in dairy cow numbers will continue for at least the next five years.
“Total cow slaughter last year was down 14% on the year before. It’s slowed back significantly indicating animals are being retained for breeding.”
