DENVER, Colo. – Now is the time for cow-calf producers to analyze their costs of production and consider expanding their herds, say executives from one of the world’s largest beef processors.
In mid-January, packers offered an average of $108 per hundredweight for fat steers in the United States and $100 per cwt. in Canada.
Those price signals should tell producers to add more cows and start rebuilding, said Tom Brink, who manages JBS-USA’s Five River feed yard in Greely, Colorado.
“Beef industry markets are winning right now with unprecedented profits and low supply,” he told the recent International Livestock Congress in Denver.
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“I believe we are going to see unbelievable profitability in the cow-calf producers that will lead to expansion.
“I think we will see our herd grow, but how far and how fast, there are lots of variables.”
Prices look favourable in the next three to five years. International demand will be the main influence.
“Our market is in disequilibrium as far as I can tell because we have had such a shock in terms of this growing international demand that the domestic market is trying to find new price points,” he said.
Retail price averages for choice beef were $4.40 per pound last year and should exceed $5 based on the live cattle futures market.
U.S. consumers are likely to stop eating beef as much once it becomes more expensive.
“We’ll actually see rationing of our beef supply in 2011 because of the pull from the international markets, which may increase another 25 percent this year. That will literally buy products away from the domestic channels,” Brink said.
Paul Clayton of the U.S. Meat Export Federation said beef exports should return to 2003 levels by 2013. The United States exported more than 1.2 million tonnes in 2003 until the discovery of BSE in that country stopped trade with lucrative par tners such as Japan and South Korea.
Clayton expects the U.S. to export 1.4 million tonnes by 2015.
Exports added an extra $136 to the value of a carcass in 2003. Last year it was $159.
Naysayers argue that expansion is unlikely because of high land prices, $5 per bushel corn and an aging ranching population where the average producer is 58.
Cow-calf producers also need to start seeing profitability soon, said Mark Gustafson of the Five Rivers plant.
It is easy to build more feed yards and packers but it is harder to encourage more cow-calf production, he added.
“Be it monetary or information, we are going to have to invest in cow-producers,” he said.
Producers would be better able to enter the value-added side of the business if they had more information to meet market demands, he said.
Brink said 25 to 30 percent of cattle on feed are significantly inferior in quality because of genetics and management.
“They drag down the rest and these need to be brought up to at least average.”
Five Rivers can feed 900,000 head at its 12 feed yards.
Gustafson said feedlots and processors must relay those messages to producers. Contracts and grid pricing formulas are two ways to do this, but there is a lot of noise between processors and producers that does not translate into useful information
“This is an area we have to focus on and somehow we need to get that information back to producers so they can make good decisions,” he said.
