Cattle Producers Advised to Manage Risk

Ag Economist Recommends Ranchers Take Advantage of Low Feed Costs

Jennifer Carrico
By  Jennifer Carrico , Senior Livestock Editor
Economist Dan Basse discussed the global agricultural economy during the Feeding Quality Forum in Dodge City, Kansas, recently. (DTN/Progressive Farmer photo by Jennifer Carrico)

DODGE CITY, Kan. (DTN) -- The question on the minds of many beef producers is, "How soon will the herd rebuild?" In the opinion of economists like Dan Basse, that won't happen yet.

Basse, an economist for AgResource Company, recently discussed his thoughts during the Feeding Quality Forum in Dodge City, Kansas. He said it's important to look at what is happening worldwide in agriculture to better understand what is happening locally. While those in the U.S. beef industry have been doing relatively well, there are some big struggles elsewhere.

"U.S. farm income is down 39% the last couple of years," he said. "Brazilian bankruptcies are up more than 500%, Russian farmers are struggling because of the war, as are Ukrainian farmers. No matter where we look, we are seeing issues with the world economic landscape for the agricultural sector."

Basse said that while it looks bad worldwide, the U.S. has some major struggles too, especially surrounding the government debt.

"We believe that there's a bullish market ahead. We still don't have herd rebuilding. We still see supplies tightening," he said. "When you think about what's forthcoming, it is something that I think you can be bullish about."

GRAIN PRODUCTION INCREASING

On the feed side of the ledger, Basse said it's important to look at the building blocks of agriculture in the three primary grains: wheat, corn and soybeans. The price trends on all have been going down. Even with some drought areas around the world, global grain production is still rising.

"It doesn't matter if you're a U.S. grain farmer, Brazilian grain farmer, or a European grain farmer -- they are all losing money," he added. Net farm revenue is down $69 billion, or 37%, which is the largest decline ever in a two-year period. He added that losing China as the No. 1 importer of American agricultural goods has had a major effect on the bottom line.

Basse recommends cattle producers take advantage of cheaper feed while it's available. U.S. corn yields are expected to be record high. Making this purchase will help manage risk on the feed side.

MEAT PRICES STAY HIGH

U.S. meat prices are expected to hold steady at the current high price levels. When looking at the January U.S. cattle inventory, numbers were at their lowest levels since the 1960s.

"We need to hold back cows and heifers. When that happens, we take beef off the market, which gives us another two years of goodness," Basse added. "I really wonder if, longer term, if we can build the cow herd back to numbers that we need going forward."

He pointed out that the increase in breeding dairy cows to beef bulls to get dairy beef could help improve the amount of beef available. Cow slaughter numbers seem to be going down, which could help with the rebuilding, but it won't happen overnight.

"For those of you in the cow-calf business, the times have never been better. The average estimate from universities and our calculations in terms of margins are now close to $600 per head," he said.

Retail beef prices continue to be high, and demand for the high-quality end is even better. The choice-select spread has narrowed significantly, but it seems that a lot of beef is being fed longer and thus increasing the quality grade.

Basse said that down the road, he is concerned with the overall volatility of the markets, and he suggested having good risk management in place to protect the investment.

Jennifer Carrico can be reached at jennifer.carrico@dtn.com

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Jennifer Carrico