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Economist spells out 2012 for beef — sector by sector
Story Date: 2/9/2012
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Source: Rita Jane Gabbett, MEATINGPLACE, 2/8/12
In the context of decreasing cattle supplies, Kansas State University livestock economist Glynn Tonsor predicted a tough year for feedlots and packer margins while calf/cow operators benefit from what has become a sellers’ market for cattle.
“Overall, expect a volatile year with probably attractive opportunities for many operations who can ‘stomach the new normal’,” Tonsor told attendees to a webinar presentation, “Beef Economics,” sponsored by Merck Animal Health in partnership with Meatingplace, Kansas State University, Beef magazine and the Drovers Cattle Network.
It was the first in a quarterly series of webinars scheduled to examine various economic trends affecting the industry.
Tonsor also warned, however, that slaughter plant and feedlot closures could be “a real possibility” in 2012, which would result in less aggressive bidding for fed cattle once excess slaughter capacity is diminished.
He also predicted a “growing relevance of premiums and diversity across operations,” which means some feedlot operators could be far less affected than others by overall supply and price trends.
Looking at the stocker segment — those who purchase calves from cow/calf operators and feed them to sell to feedlots for finishing — Tonsor said margins will be squeezed by expensive calves and high corn prices.
Cow/calf operators, on the other hand, may see returns over cash costs at historic records over the next couple of years.
Q&A
Responding to questions, Tonsor said he does not see a “magic price” at which consumers will balk at buying beef, noting that even as per-capita consumption has declined and prices have increased, overall beef demand has increased over the past six quarters.
Asked about the impact of USDA’s new policies around testing for six non-O157:H7 Shiga toxin-producing E. coli (STEC) set to begin in March, Tonsor said anything that increases the cost of production but does not raise the value of the product in the eyes of the consumer will have an adverse effect on the beef industry in terms of profitability.
While calling the possibility of Japan allowing beef imports from cattle up to 30 months of age (from the current 20 months) an aggregate plus for the U.S. beef industry, he noted new age verification requirements would be a factor in just how positive it would be.
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