For the first time in years, the pendulum is swinging back toward profitability for the American cattle industry, according to an Iowa State University cattle marketing expert. Historically-high corn prices during the last several years drove up the cost of feed for U.S. cattle producers, pushing the industry into the red. "But with corn prices falling during the second half of 2013, cattle producers are looking for some light at the end of the tunnel," says Lee Schulz, an ISU Extension livestock specialist and assistant professor of economics.
"A lot of things still need to go right in 2014, but at least from the standpoint of market conditions, there's the potential for profitability," Schulz says. "In years past, producers were mostly in survival mode, and now producers are talking expansion in the industry. There's interest in building new facilities and in growing the nation's beef herd."
Schulz says the ISU estimated livestock returns series, a monthly barometer of livestock markets, showed that feedlots made money on cattle sold in October, breaking a long streak of monthly losses. He says Iowa cattle producers are particularly well positioned because of the proximity and availability of corn and corn co-products that go into cattle feed.
Tight feeder cattle supply has increased feeder cattle prices, creating headaches for feedlots that try to outbid each other for cattle
Combined with softening corn costs, tight supplies have driven up feeder cattle prices, benefiting cow-calf producers but creating headaches for feedlots as they try to outbid one another to fill up bunk space, Schulz notes.
The tight supply of feeder cattle arose over the last few years as producers culled their cow herds to deal with severe drought and the high cost of feed. But don't expect cattle producers to ramp up calf production immediately to take advantage of improving market conditions, Schulz says. "It takes more than a year to bring a heifer calf into the breeding herd, and the biological realities of raising cattle make it impossible for the industry to turn on a dime," he adds.
"We're several years off from building the nation's beef herd with increased calf crops and increasing cattle supplies," Schulz says. "A lot of the supplies are pretty certain at this point. It's the demand that's uncertain."
But for an industry beset by consistent losses since the beginning of the national recession, Schulz has noticed a change in mood now among some cattle producers. "We've been talking about feed prices for so long—how it's been such a drag on the industry—but it's now becoming a better situation," he says. "The market incentives are starting to materialize such that we have the potential to start building the beef herd."