December 26, 2013

Economist Offers Strong Beef Price Outlook For Two Years

Rising beef prices would be even better in returning profits to feeding and producing cattle if based on rising demand and not shrinking supply, said a University of Missouri beef economist.

Livestock producers heard optimism with a bit of caution from Scott Brown at the annual Missouri Forage and Grassland Conference at Port Arrowhead at Lake Ozark earlier this year.

Brown said with lower corn prices and higher cattle prices, it’s hard not to be optimistic about profits in the beef business.

He used all fingers on his left hand to tick off reasons for optimism in 2014 and 2015.

Export demand is booming, domestic demand is improving, the drought monitor map looks better, U.S. cow herd has dropped more than 6 million head in 10 years, and demand for quality beef continues up.

He compared current outlook to the “golden era” of beef profits in 2004. “We haven’t seen these conditions in years,” he said.

His charts showed a sharp rise in live-cattle futures prices since 2010, from $80 per hundred to $135. Then he showed changes in cow-calf returns from minus $25 per cow in 2009 to plus $25 in 2012.

However, that average jumps to $300 per cow in 2014. That estimate is from the Livestock Market Information Center in Denver.

The economist was quick to add, “All bets are off if there is a drought in 2014.”

Risks in the beef business could return in a faltering economy or disease outbreak, or if prices rise too high for consumers.

A weak link is domestic demand. “Consumer disposable income will have a big impact,” Brown said. “That is recovering, but any weakness in the general economy will be felt.”

The recession caused a shift away from eating out as often. “The restaurant trade helps beef prices. But you must provide a good eating experience, especially as the price goes up,” Brown told producers

The wholesale beef dollar value increased most over the past decade for USDA choice-grade beef. Choice gained nearly $15 billion while lower-quality USDA select increased only $2 billion.

More recently, the biggest gain has been in USDA prime grade returns. But that makes up a small part of the total production. Less that 5 percent of all carcasses grade prime.

However, Brown cited research at the MU Thompson Farm: Steers from the AI-bred herd now grade 30 percent prime when fed out. Those results from the agricultural research center are now being topped by producers who’ve adopted the protocols.

“Investment in genetics can increase carcass premiums by $25 per hundredweight,” Brown said. “The research shows that it is not just in the feeding but in the genetics that make prime possible.”

The turnaround in beef will be slow because of the long biological lag between breeding and final fed steer. Pork and chicken can re-enter the market quicker than beef. “We already see increased chicken consumption following their dip in marketing that started in 2008.”

To compete, beef must continue to provide the flavor and tenderness that consumers want. “It’s unfortunate that high beef prices result from the loss of supply,” Brown said. “A growing economy would do the most for beef demand.”

Brown, a member of the MU agricultural economics unit, covers beef and dairy policy for the MU College of Agriculture, Food and Natural Resources.

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