The age of US cow-calf producers, rather than of the animals themselves, may be key to the future of the country beef industry.
Macquarie forecast feeder cattle futures remaining elevated well into next year, and only moving back below 200 cents a pound on a sustained basis towards the end of 2016.
The expectation reflects ideas of a continued tightness in supply of feeder cattle as feedlots – seeking stock to fatten and exploit high beef prices – and breeders – attempting to rebuild a US herd whose reduction has sent values soaring – compete for supplies.
Although breeders have begun to rebuild the US herd, as indicated by the relatively low level of cows and heifers being slaughtered “given that it takes several calf crops to build the cow inventory, 2015 will likely be too soon to see a material increase in herd numbers,” Macquarie said.
The bank forecast futures of feeder cattle, ie animals ready to be fattened, peaking in Chicago in the July-to-September period of this year, at a quarter-average price of 230 cents a pound.
The spot January feeder cattle contract was trading on Thursday at 216.875 cents a pound, while the September lot was worth 210.75 cents a pound.
Sell, or stick?
However, Macquarie acknowledge a threat to its forecasts if US cow-calf producers opt to sell up and exploit the strong prices, within sight of the record 245.20 cents a pound set in October, rather than stick with the plan of rebuilding their herds.
“The risk to our view is that cow-calf breeders decide to take the profit and exit the industry now when prices are record high, rather than build the herd for future income,” the bank said
“With the realistic prospect of increased feed costs, the idea of capitalising on the current income position is beginning to look quite attractive.”
The decision over whether to sell-up, “taken on a producer by producer level, will likely decide the future of cattle prices and beef production for several years to come”.
The comments follow a caution from the US Department of Agriculture over the likely appeal to breeders to cash in on high current feeder cattle prices, which are up some 25% year on year on the Chicago livestock futures market.
“Cow–calf operators face significant incentives to sell heifers as feeder cattle sooner, rather than selling potential calves a year or two down the road by retaining those heifers,” the USDA said.
And it highlighted the ageing profile of cattle breeders as a possible influence on the “difficult” decision of whether to sell now.
“Given the average age of cow-calf producers—60 in 2008, the last time a… survey for cow-calf operations was conducted – and the high costs of doing business, it is not difficult to understand the desire to capture current income,” the USDA said.
“How these circumstances and dilemmas play out will influence beef production for the next several years.”
Hog price prospects
Macquarie was less upbeat on prospects for lean hog futures, seeing them unlikely over the next two years to retrace the highs above 130 cents a pound reached in the summer.
“We believe hog prices will remain bearish throughout 2015-16.
“Although both domestic and global demand for US pork is likely to grow this year, the hogs and pork supply increase should exceed these,” with the threats to the herd from porcine epidemic diahorrea virus (PEDv) and porcine reproductive and respiratory syndrome (PRRS) abating.
Nonetheless, the bank’s forecast of lean hog futures ending this year at about 81 cents a pound was above the 68.775 cents a pound being priced in to the December contract on Thursday.
Expansion in hog production will see some limits, including from farm infrastructure.
“US breeders simply don’t have the barn capacity to keep the near-record number of animals,” the bank said.
(Source – http://www.blackseagrain.net/novosti/age-of-us-cattle-breeders-may-hold-key-to-beef-market)