Bullish prospects | Expert sees United States herd expansion push into north and west
After years of decline, the U.S. calf crop is poised to grow, according to a Kansas State University assistant professor who spoke at a research ranch in central Saskatchewan.
Glynn Tonsor said he thinks expansion will resemble what existed in the 1990s rather than the historic highs of the 1970s and 1980s.
With consumer education and food safety concerns, the U.S. domestic market for beef is changing, he said. Domestic consumption is down but beef production is trending upward and export prospects remain bullish, he said.
“We’ll increasingly export product and producers that want to be part of that story and have below average costs; it looks like a very prosperous time over the next decade or so,” he said.
Tonsor spoke at the Western Beef Development Centre’s 14th annual summer field day on the Termuende Research Ranch near Lanigan, Sask., June 26.
Tosnor said he thinks certain regions of the U.S. have an economic advantage for expansion.
“I think the herd is moving a little bit north and west of Kansas.”
He said there are two main reasons for this: the average herd size is larger north and west within the U.S., and there are economies of scale in cow-calf production, so those operators are in a better position to expand.
The second point boils down to land-use change. While some U.S. states have planted corn, others have not.
“If you generalize that across the U.S., that pressure is a little less in the north and the west. So the likelihood of that acreage staying forage is a lot higher than it is in the eastern corn belt, or in some southern parts of the country,” he said.
Tosnor surmises that Canada’s two largest cattle provinces will go through similar change.
“The economics underlying the movement north and west in my U.S. data, I think, (are) similar for southern Alberta and Saskatchewan. I don’t have data for Canada and this parallel, but I think the relative cost advantages in that part of the world, compared to the southeast in the U.S., are very similar,” he said.
On the other hand, the U.S. Department of Agriculture’s longer-term projections as of February 2012 indicate Canada’s beef exports will be relatively flat and the U.S. growth rate will be 14 percent.
“The main reason in the report for that is USDA in this projection doesn’t have a lot of faith you’re going to expand the herd much and therefore not be able to export. There are concerns about delayed expansion,” he said.
Assuming both markets will expand, Canadian inventory changes lead the U.S.
“It appears that the trough in the Canadian inventory might be about two years before the trough in the U.S., so two years ahead,” he said.
“Canadian cow-calf producers might be positioned to gain from that earlier than the U.S. Some of the heifer retention signals occurred earlier in Canada than the U.S., so there might be a calf crop or two that Canadian producers can benefit from before all of North America,” he said.
Tosnor said current high prices may tempt some producers to try and beat the market, but he said there are more effective ways to turn a profit.
“There’s more to be gained by being a lower cost producer than there is in timing the market … returns are larger in terms of cost management than they are on the revenue side,” he said.