Cow-Calf Producers Should Get More

NEW ORLEANS (DTN) -- America's cow-calf producers may be the backbone of the industry, but they aren't getting their fair share of today's high prices. That's something Randy Blach said needs to change, as he called this the beef industry's "Achilles' heel" in a talk before attendees of the National Cattlemen's Beef Association (NCBA) annual meeting in New Orleans.

Blach, chief executive officer of CattleFax, told attendees that if the beef industry hopes to be sustainable for years to come, the profitability of the cow-calf segment must improve.

"A more profitable cow-calf sector will mean more sustainability and health for the overall industry," he stressed. "Think about the word 'sustainable.' It starts with profitability, being socially and environmentally responsible and on target."

The annual industry outlook by CattleFax analysts is a staple of the Cattle Industry Convention and Trade Show. This year's outlook focused not just on beef, but on weather, energy, the economy, and grain and hay markets.

A LOOK AT THE BEEF NUMBERS

Veteran beef analyst and Vice President of Industry Relations for CattleFax Kevin Good shared a largely bullish outlook for beef prices moving through 2023.

The forecast is for a fed steer price averaging $158 per hundredweight (cwt), with a range from $150 to $170. The price for an 800-pound steer is forecast to average $195/cwt, with a range of $175 to $215. For a 500-pound steer, the average is forecast at $225/cwt, with a range from $200 to $250. And on utility cows, the average will be $100/cwt, with a range from $75 to $115.

Simply put, Good said, grass plus cash would equal more calves in 2023, but he noted that even with higher calf values, today's rising input costs are creating a lot of headwinds for those in the cow-calf business. He said those forced to buy feed today to get through the winter have seen costs go up between $200 and $300 per cow, leaving them barely keeping up.

Other 2023 forecast numbers Good presented included:

-- Commercial cow slaughter will be down 735,000 head.

-- The U.S. beef cow inventory will drop 1.96 million head this year and 300,000 head more in 2024.

-- Beef/dairy cross steers will continue to make up more of the market, with those animals at 7% of fed slaughter in 2022 and an expected 15% by 2026.

-- The U.S. feeder cattle and calf supply will drop 3%, or 1.3 million head, comparing 2022 and 2023.

-- U.S. steer and heifer fed slaughter will drop 3% (-800,000 head) for 2023. Total slaughter will be down 4.7% (-1.6 million head); non-fed slaughter will drop 10.5% (-800,000 head).

-- Average carcass weights will be 1.5 pounds heavier.

-- Beef production at 27 billion pounds will reflect a 4.6% drop (about 1.3 billion pounds less).

ECONOMICS, ENERGY AND DEMAND

Mike Murphy, chief operating officer with CattleFax, focuses on risk management analysis for the beef, cattle and grain sectors.

Interest rates and inflation were at the top of his points, as he noted they expect to see two more quarter-point increases in interest rates moving into the spring, with prime at 8% to 8.25%. He said no relief is expected through the end of 2023. Those higher rates, he said, were adding to costs for the cattle industry.

"Rates have doubled over what we saw most of the previous decade," he said. "So, on a 1,400-pound steer, you are doubling the interest cost on the cattle side. On bred females, at 25% equity, you are doubling interest costs. These are potential headwinds when we talk about how these things may impact price forecasts the rest of the year."

Murphy said they have raised the caution flag when it comes to the personal savings rate in the U.S., which is now at the lowest rate since 2008-09 at 3.4% year to date (YTD). For comparison, the long-term average rate is 8.84%. Today's lower rate may affect demand for beef from consumers, the analyst said, adding he believes it will come down more to unemployment levels moving forward. CattleFax reported per capita net beef consumption is expected to drop 2.2 pounds for 2023.

"But we are well employed from the consumer perspective," Murphy noted. "If we have that, we feel good even if there is financial tightness. From our standpoint, this is supportive to beef demand. Overall, we feel good where we are because of the employment rate. We do think we'll see unemployment go to 5% by the end of the year, but that is still a very low number."

Another potential mover of the markets will be energy costs, which Murphy described as a "wild card." He said energy values in the mid-$70s on crude oil are likely for the rest of the year. Average crude prices in 2022 were 39% higher than for 2021. High diesel costs, he added, are likely to continue with producers needing to budget for those elevated prices because demand will continue to outstrip supply.

CORN AND HAY PRICES

Murphy also looked at grain markets and hay production going into this year. He expects hay prices to follow corn market trading, noting it all comes down to yield moving forward on the price front.

For the 2023-24 U.S. corn industry, Murphy said CattleFax is forecasting 89 million acres planted and 81.2 harvested, with an average yield at 177 bushels per acre -- a 3.7% increase over the 2022-23 season. He places production at 14.36 billion bushels, for a total supply at 15.63 billion bushels, a slight year-over-year (YOY) increase. As the 2023-24 season ends, he projects ending stocks to use at 11.5%, a 2.5% increase YOY.

Monthly average spot futures corn prices for May look to be between $5 and $5.50 per bushel.

On hay production, Murphy said it's now at the smallest level since the mid-1950s, adding that there has also been a 5-million-head decline in the number of beef cows since 2000, reducing demand. As of Dec. 1, 2022, on-farm hay stocks were down 9% from a year ago, with 2022 being the smallest U.S. hay production year since 1959.

But more snow cover and colder temperatures have forced cattle producers in many areas of the country to feed hay earlier, and that means they'll likely use more this winter. At present, all-hay prices were averaging $216 per ton in 2022, with 2023 prices expected steady to higher the first half of the year and then stabilizing and softening the second half of the year.

For more DTN coverage from NCBA's annual meeting:

"Turning the Cattle Market Loose" https://www.dtnpf.com/…

"Quality Opportunities in Beef Expansion" https://www.dtnpf.com/…

Victoria Myers can be reached at vicki.myers@dtn.com

Follow her on Twitter @myersPF

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