By Curt Lacy
2012 was a very good year for Southeast beef producers.
Historically high cattle prices combined with favorable weather to produce considerable profits for cattlemen in the first half of the year. However, corn prices sky-rocketed. Calf prices took a major tumble before stabilizing in late August to finish the year on a strong note.
Through mid-November, prices for 500-600 pound calves averaged 19% above 2011's prices and almost 46% above the five-year average. For some perspective, during the first half of 2012 prices averaged about $30 per hundredweight above those of 2011. On a 550 pound calf, this equated to $170 per head increase in revenue with some weeks seeing year over year changes in excess of $200.
While 2013 will likely not see a repeat of 2012 in terms of price increases, cattlemen have several reasons to be optimistic as they look to 2013 and beyond. The primary reasons are declining cattle numbers and hopefully stable to improving demand. The combination of these two should cause cattle prices to remain very favorable for the next several years.
While dry pastures and increased feeding amounts were a major concern in late spring, the major damage was done later in the year as corn prices increased rapidly causing calf prices to drop precipitously.
Generally speaking, a 10-cents per bushel increase in the price of corn will decrease the price of a 500-600 pound calf in Georgia by about $0.75-$1 per hundredweight and vice versa. This phenomenon is due to the fact that output prices and feed prices are givens for cattle feeder. As a result, the only thing the can control is the price that they pay for calves.
When feed prices get "unusually" high, the differential between heavy and lighter-weight calves diminishes as it is more economical for buyers to purchase the weight on the calves than to buy the calves and add the weight themselves.
Current long-term weather forecasts do not indicate any significant drought relief in the Midwest. Grain markets will be very volatile, in turn causing cattle markets to be equally as sensitive.
For the last two to three years, markets have signaled producers that they should be increasing production. However, different parts of the country have suffered severe droughts which served to not only limit expansion, but rather to cause increased contraction in the sector. It will be quite some time before we see any appreciable increase in beef production in the U.S. Beef production is expected to continue to decline at least through 2014.
Historically, the U.S. exports about 10% of its beef production. In recent years that percentage has increased 11-plus % due to not only to increased volumes of exports, but also due to the shrinking beef cow herd. In 2011 exports as a percentage of total beef production were higher than in 2003, the year immediately prior to the discovery of BSE in the U.S. cow herd that effectively eliminated beef exports for the next few years.
Beef exports are expected to remain steady for the next several years. We can provide large quantities of high-quality grain-finished product, bolstered by our superb inspection system and very low incidences of BSE.
2012 was a very good year for cattle producers. 2013 is expected to be another good year. However, concerns about weather, grain prices and the economy should temper any irrational exuberance. Looking forward to later in 2013 and 2014, tight supplies are expected to result in stable or higher prices for cattle producers.
Lacy is the University of Georgia Extension livestock economist.