Kansas ranchers will see a golden age in 2014, while feedlots and packing plants will remain deep in gloom.
Forecasters told audiences at the Kansas Livestock Association convention this week at the Hyatt Regency Wichita that circumstances are aligning to make next year the most profitable year to raise cattle in at least two decades.
In his talk Friday morning, Randy Blach, CEO of CattleFax, told the audience that 2014 is the year that the cattle herd finally will start to reverse its nearly 20-year decline, as ranchers start to hold back heifers for later breeding.
The reason: The cost of raising cattle has fallen as the drought has eased over most of the country, replenishing supplies of pasturage and hay, and helping produce a record corn crop. The price of corn has fallen from about $8 a bushel to about $4.
Because the supply of calves remains tight from the long-term herd decline and a robust export market, and the cost of raising them has fallen dramatically, their value has shot up $30 per head in just a few months.
Ranchers have begun to react in the last six months, Blach said.
He predicted that 500,000 to 600,000 cattle nationwide will be held back in 2014, rather than sent to slaughter. The beef herd is about 29 million cattle. By Jan. 1 2015, he expects the USDA to record its first growth in the herd since 1996.
“Cow slaughter is declining rapidly, finally,” he said.
Glynn Tonsor, associate professor and agricultural economist at Kansas State University, forecast that cow-calf ranchers will see an average profit of $302 per head. That’s about twice as much as the $148 to $150 per head return in the previous peak years of 2004 and 2013.
And it’s not just one year. Tonsor is calling for “an abnormally profitable environment” for ranchers over the next four to five years as favorable conditions continue. Demand for beef remains stronger than many believe, he said.
Both Tonsor and Blach said that they expect the price of corn to remain low in the coming years as growing conditions improve and export opportunities become more volatile. In the last four years, Blach said that foreign countries have started to produce corn to undercut high-priced U.S. corn exports.
Even more good news, Blach said, is that beef exports continue to grow even though beef’s high price means it continues to lose market share to chicken and pork.
The U.S. is the now biggest exporter of protein, he said, with 16 billion pounds of beef, pork and chicken, or 26 percent of total protein exports worldwide.
“I’m trying to give you a heads-up that your market is changing and changing rapidly,” Blach said.
Tonsor said that leaves cow-calf ranchers with a dilemma: Hold back heifers to rebuild their herds for what could be a profitable few years, or send those heifers to slaughter to cash in on high margins next year.
“It’s a tough decision, a good tough decision, but not one without some long-term risk,” he said.
The risk, Tonsor said, is ranchers losing out on future profits by rebuilding too slowly. However, he expects breeding stock to grow about 1 to 2 percent next year.
Blach said there’s another big, long-term risk for ranchers. Feedlots and beef packers already have about 25 percent more capacity than they need.
In 2014, stocker operations will continue to be profitable, but feedlots and packing plants may not be, Blach said. Feedlots will do OK in the first half but will suffer in the second half as the supply of cattle shrinks.
And packing plants will see more closings, Blach said. A packing plant in Emporia closed in 2008, and one in Texas closed this year.
Ranchers need to rebuild the herd, or they will hurt themselves long-term, he said.
“If we don’t respond, we’ll become more of a niche product as we lose infrastructure and wash more people out,” Blach said.