Beef analyst: 2013 to see more high costs, price volatility, shrinkage in the herd

12/01/2012 8:08 AM

08/08/2014 10:13 AM

The drought has driven up costs – as well as prices – for livestock, making the lives of those in the cattle industry financially precarious, Randy Blach, CEO of Cattle-Fax, told the audience at the 100th annual Kansas Livestock Association meeting Friday.

Even if rains become more plentiful, 2013 holds more of the same: further declines in the numbers of cattle even as cow-calf producers start to rebuild their herds, and the likely closings of feed yards or even a slaughter plant. Blach said dramatic volatility in prices could sink producers who aren’t adequately hedged.

Roughly 70 percent of the nation’s cattle herd has been affected by drought this year, he said.

The culling is slowing now, but Blach estimated that the nation’s herd will be down by 1 million head by the time the government releases its semi-annual cattle inventory in January. And he estimated that next year will see a further decline of another 580,000 head.

The fact that cattle continue to get bigger – up another 17 or 18 pounds in 2012 – offsets much of the decline in numbers in total pounds of beef produced, he said. That’s an efficiency gain for producers.

Still, the decline in numbers is exacerbating the existing overcapacity in industry. Blach said it’s possible one or two slaughter plants and several feedlots could close in the next 12 to 18 months.

“We have a lot of excess feeding capacity, we have a lot of excess packing capacity,” he said. “We will likely see some closures start within the next 12 months. And that is never good because once you start seeing them close, and it is always particularly from a packing standpoint, it is tough to get them back open.”

And the high prices on feed are creating wild fluctuations in prices, which makes it essential for producers to hedge their feed costs and sales.

On the positive side, in the long term, livestock farmers are holding on to most of their breeding heifers in the expectation that rain will return and it will be time to rebuild herds. He said he actually expects those numbers to increase.

“We just have to have Mother Nature cooperate with us,” he said.

He said that if the drought ends, he expects herds to stabilize by 2014.

Blach said even as costs have risen, nobody has really benefited: not producers, feedlots, packing plants, grocery stores or customers.

Rather, everyone feels the squeeze.

Consumers can expect to pay 5 percent to 8 percent more at the meat counter next year regardless of whether they buy beef, pork or chicken.

For the producers, he said, 2013 is dangerous, but if producers can hedge their risk, they can make money.

Blach also said he remained hopeful the nation would see action to avert the so-called fiscal cliff, a package of tax increases and spending cuts that will take effect next year unless Congress and the White House replace them. He urged cattlemen to encourage their congressmen to come to a deal.

Cattle producers could lose more than $200 a head in value because consumer demand will fall if Congress does not avoid the fiscal cliff, he said.

“They need to get this thing resolved because it could have some major implications to our business,” Blach said.

Contributing: Associated Press

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