U.S. cow-calf producers are poised to earn record profits next year and it is a similar situation in Canada.
“2013 is setting up to potentially be an historic record year for the cow-calf producer, but of course it will vary across the country,” Kansas State University agriculture economist Glynn Tonsor said during a May 1 webinar.
“From a beef industry benchmarking standpoint, a lot of things are lining up to set 2013 as one of the best if not the best year that has ever been seen in the U.S.,” he said.
However, other sectors in the cattle sector are more likely to experience losses.
“The cow-calf sector is still positioned as the segment that will be the benefactor, if and when we start the process of additional heifer retention to expand the herd,” he said.
Tonsor’s analysis shows cow-calf producers earned $80 per head over costs last year, which could increase to $200 this year and $225 to $230 next year.
“One general trend continues to hold, 2012 and 2013 are shaping up to be very good years for the typical cow-calf producer,” he said.
However, high priced calves and expensive feed have reduced the profit that backgrounders and feedlots might receive.
There is excess bunk space relative to the size of the calf crop and weakened returns, so Tonsor sees losses of $125 per head for the typical feedlot for the rest of the year.
“There is notable red ink pressure on this industry and there has been for a few months now,” he said.
He estimated feedlots have close to 20 percent excess capacity relative to the size of the calf crop.
The U.S. Department of Agriculture predicts expansion and expects five million calves will be added to the herd in 10 years.
“If capacity in the feedyard stayed the same and days on feed stayed the same, but the calf crop increased by five million head, we would end up with three percent excess cap-acity.”
However, he doubts the industry can wait 10 years, so there will be pressure for feedlots to consolidate.
Fewer available animals means reduced slaughter, resulting in a three percent reduction in beef production this year and next.
The Canadian situation is similar, said market analyst Anne Dunford of Gateway Livestock.
Alberta and Saskatchewan finishing feedlots held 968,000 head on April 1, indicating 60 percent of capacity use.
“You never run 100 percent, but you would have to go back to 2000-01 to see 1.2 or 1.3 million head on feed, which would be 75 to 80 percent capacity,” she said.
The highest number of cattle are on feed in the spring and the lowest placings are in August.
“We will have even more open and empty pens once we get through the summer,” she said.
Feedlots are now selling everything they bought last fall and like their U.S. counterparts are losing money.
Feeder prices were strong this winter, but input and feed prices are robbing producers of profit. Southern Alberta barley has in-creased by 20 percent this year.
“We’ve got record feeder cattle prices and inputs are up, your feed prices are up and we are heading into the summer doldrums with demand issues,” Dunford said.
“Unless somebody was hedged or contracted or managed some price risk, if you are looking at the cash market, you are going to be looking at negative margins, I suspect,” she said.
She anticipates the cow-calf sector will enjoy unprecedented profitability in the coming year.
Profits will probably be plowed back into operations after years of successive losses caused by bad weather, BSE and a recession that hurt the entire beef industry.
“There has been 10 years of some really ugly business since the drought of 2002,” Dunford said.
“There is a lot of water under the bridge that needs to be made up.”