Cow-calf producers battered by a decade of low prices can look forward to higher prices, says an American cattle industry expert.
Steve Kay, editor of the industry newsletterCattle Buyers Weekly,said cattle producers are on the brink of more profitable times.
“My message is really simple to you today. Where we are today is full of opportunity,” Kay told producers at a Cow Calfenomics conference in Camrose.
“You will have record prices going forward, I have no doubt.”
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A combination of increasing beef demand and a shrinking American cow herd points to stronger prices, Kay said.
He said an exceptional drought in several states, most notably Texas, has caused the U.S. cow herd to shrink for the fifth year in a row. He estimates one-third of the U.S. beef cow inventory is in an area under drought.
The American cow herd has dropped from 94.5 million head in 2009 to an estimated 91.4 million next year, while the Canadian herd has dropped from 13.1 million in 2009 to an expected 12.6 million in 2012.
Cattle numbers in the two countries have dropped 3.3 million head in three years.
“We are certainly going to have the fifth year of herd contraction,” Kay said. “It’s most unlikely we will see expansion next year. At most, there will be a stabilization and there likely won’t be an expansion until 2013 unless it rains a great deal.”
He said drought, high input costs, age of producers, an aversion to risk, market volatility and uncertain economic times are preventing herd expansion.
“If we look at the big picture, those declining supplies coincide with better demand,” said Kay, who suggested producers expand their herds if they are able. “You producers are key to one of the most sought after products in North America.”
Record highs
The shrinking cattle herd has already translated into record high cattle prices.
In the U.S., fed cattle are trading at $110 to $130 US per hundredweight and 700 to 750 pound feeder steers are $125 to $140 per cwt. In Alberta, 500 to 600 lb. feeder cattle prices hit $160 Cdn per cwt. this fall, exceeding the August 2001 record.
Record high cattle prices have translated into near record high wholesale prices and are slowly inching up beef prices in the grocery store.
Consumers battered by tough economic times still want to eat beef but can’t afford high priced cuts of meat. Instead, they are turning to hamburger as their recession-based protein choice.
“That is the product consumers have been able to continue to afford.”
It is turning into the industry’s most important product, Kay added.
“The trend to more and more ground beef will continue,” he said. “They want the taste of beef and want to afford it. It’s indulgence on the cheap.”
The number of Americans who eat a burger a week increased from 38 percent in 2009 to 50 percent this year, but it’s not just low-end fast food hamburgers that have seen an increase.
Kay said interest in gourmet specialty hamburgers has increased significantly as more chucks, rounds and sirloins go through the grinder.
The biggest challenge may be finding cow-calf producers who haven’t been battered too badly and are willing to stay in the industry.
Many cattle producers are deciding they would rather cash in on higher priced cows than attempt to expand their herd and stay in the business longer.
“We the beef industry of North America, the industry depends on you,” Kay said.
“We rely on you all to expand your herd to take advantage of the growing demand forbeef in North America and globally.”
