Livestock Market OutlookKSU Drought Programming Planning Meeting

WebinarFebruary 12, 2013

James G. RobbDirector

james.robb@lmic.info

USDA Members:ERSAPHISGIPSANASSWAOBAMS

Associate Members:AFBFASINCBANPBCME-GroupCanadian ConsortiumNoble FoundationCoBankTCFACWBTCU

29 land Grant Universities:

Topics: Markets and Drought …

• Economic Environment• Cattle Markets

• Inventory Numbers• Calves• Fed Cattle• Cull Cows

• More Drought Comments

USDA Data Sources – NASS, AMS, FAS, and ERSAll Forecasts – LMIC

Economic Environment ….

• Domestic Consumer Demand has Stabilized and is Slowly Improving for Beef. But Another Recession?

• Foreign Demand Remains Strong has Softened• Price Volatility Will Continue (Globalization, Ethanol, etc.)• Market Segmentation Accelerating• Market Shocks Will Continue (9-11-2001; BSE; 2008 Credit Crisis)• Economic Incentive to Stabilize and Re-Build Cowherd Overcome

by Drought• Controls Already Set to Reduced Beef Output • High Feedstuff Price Range Expected to Continue• Cattle Feeding Red Ink is Current Major Headwind for Calf and

Yearling Prices• Mistakes Are Costly, Sound Business Practices Required• Agile Firms Will Benefit…. Be Adaptable NOT Adapted

Drought – A Game Changer

US RANGE AND PASTURE CONDITIONPercent Poor and Very Poor, Weekly

1520253035404550556065

May Jul Sep

Percent

Avg.2006-102011

2012

Data Source: USDA-NASS

U S ALL HAY SUPPLY & DISAPPEARANCECrop Year

110

120

130

140

150

160

170

180

190

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Mil. Tons

Hay Supply

Disap.

Data Source: USDA-NASS, Forecasts by LMIC

Cattle Markets

RI 2

NH 4

DE 4

5

CT 6

MA 7

NJ 9

11

VT 12

MD 41

70

90113

155

174175

191200

221

231

260

290315 360

364

375

390

454

486490

510

527

610

651

686

694

715

851

908

912

922

925

10281328

1506

1688

1754

1757

1805

4015

0 to 155155 to 390390 to 912912 to 4016

BEEF COWS THAT CALVEDJANUARY 1, 2013

(1000 Head)

Livestock Marketing Information CenterData Source: USDA-NASS

U.S. Total: 2929502/04/13

-550

-119 -100

-79

-58-45

-44

-38

-32

-24

-22

-20

-20

-15-10

-10

-10

-10

-8

-5

-5

-5

-5

-4

MD -2

-1

MA -1NH -1

0

RI 0

DE 1

1

1

NJ 1CT 2

2

VT 24

4

4

5

10

2229

30

33

41

50 60

78

-550 to -15-15 to -1-1 to 44 to 79

CHANGE IN BEEF COWS NUMBERSJANUARY 1, 2012 TO JANUARY 2013

(1000 Head)

Livestock Marketing Information CenterData Source: USDA-NASS

U.S. Total: -86202/04/13

Data Source: USDA-NASS, Forecasts by LMIC

JANUARY 1 TOTAL COW INVENTORYU.S., Annual

36

38

40

42

44

46

48

50

1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016

Mil. Head

COMMERCIAL BEEF PRODUCTIONQuarterly

5.6

5.8

6.0

6.2

6.4

6.6

6.8

7.0

JAN-MAR APR-JUN JUL-SEP OCT-DEC

Bil. Pounds

Avg.2007/11

2012

2013

2014

Data Source: USDA-NASS, Forecasts by LMIC

ANNUAL AVERAGE CATTLE PRICESSouthern Plains

55

75

95

115

135

155

175

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

$ Per Cwt

500-600lbSteerCalves

700-800lbFeederSteers

FedSteers

Data Source: USDA-AMS, Forecasts by LMIC

Data Source: USDA-AMSData Source: USDA-AMS

MED. & LRG. #1 STEER CALF PRICES500-600 Pounds, Southern Plains, Weekly

100110120130140150160170180190200

JAN APR JUL OCT

$ Per Cwt.

Avg.2007-11

2012

2013

Data Source: USDA-AMS

SLAUGHTER STEER PRICES5 Market Weighted Average, Weekly

80859095

100105110115120125130135

JAN APR JUL OCT

$ Per Cwt.

Avg.2007-11

2012

2013

SLAUGHTER COW PRICESSouthern Plains, 85-90% Lean, Weekly

40

50

60

70

80

90

JAN APR JUL OCT

$ Per Cwt.

Avg.2007-11

2012

2013

Data Source: USDA-AMS

ESTIMATED AVERAGE COW CALF RETURNSReturns Over Cash Cost (Includes Pasture Rent), Annual

-100

-50

0

50

100

150

200

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

$ Per Cow

Data Source: USDA-AMS, NASS, Analysis and Forecasts by LMIC

CHOICE STEER PRICE vs BREAKEVENCattle Feeding, S. Plains, Monthly

75

85

95

105

115

125

135

145

2005 2006 2007 2008 2009 2010 2011 2012 2013

$ Per Cwt

SteerPrice

Breakeven

ProjectedBreakeven

Latest Data: January 2013

Data Source: USDA-AMS, NASS, Analysis and Forecasts by LMIC

More Drought Comments ….

• Ranch Management is a Sequential Decision-Making Process, Especially in a Drought

• Cyclical Aspects of Industry and Prices are Important• Develop and Share Your Six Month Plan Now • Update Financial Statements and Review Your Asset Values

(Cows Often Still Undervalued)• Test Purchased and Raised Hay• Look Outside Normal Region for Hay (Canada)• Drought Recovery form Both a Resource and Economic

Perspective is a Multi-Year Process, Start Planning Recovery• Federal Income Tax Treatment of Liquidated Breeding Stock:

www.ruraltax.org • Agile Firms Will Benefit…. Be Adaptable NOT Adapted

Thank You!

www.lmic.info