Future of Cattle Production

(Jamie) Welcome back to Farm Factor. Let’s meet up with Duane again as he visits with Glynn Tonsor, a K-State Ag Economist.
(Duane) Duane Toews joining you with more AGam in Kansas, as we continue our opportunity to talk to some of the speakers at the KSU Beef Stocker Conference. Glynn Tonsor out of the AG Econ Department spoke to producers earlier in the program and Glynn obviously one thing’s for certain, whether it’s up or down the cattle market will move at some point in time and that’s part of what you talked about today. (Glynn) Yea, things are always moving. We’re definitely at a bearish tone in the market. Always trying to not feed that bearish tone, but a lot of unbiased information on why that’s going on. If I could synthesize it for our listeners here, was there’s growing concern on the demand front, particularly how fast global economic environment is going to grow or more narrowly if it’s shrinking. And that’s a view that there’s global economic concerns as bearish for expensive products like beef. That tends to push back on things like cut out values, so choice cut out value is something that I talked at length about in our talk. And choice cut out value has been beat up a lot in the last few weeks and derived demand is a term economists use when you see choice cutouts go down. If cattle prices go down, yearling prices go down, calf prices go down. (Duane) Obviously it’s the different segments of the industry that are affected at one point or another by price. We’ve had a pretty good run for the last couple years where surprisingly enough I think all sectors were profitable. (Glynn) Well the cow/calf sector in particular has had a good two or three year run; record setting by most measures. Stockers have been in and out in that period. For 2015 the feedlot industry has a notable challenge; 2014 was a positive surprise, but I belabor the margins if you like for each of those segments. You know looking forward 2016 to 17 it looks like it’s still going to be good by historic standards for the cow/calf industry. But notably worse than 2014. It’s all relative to how you look at it. Stocker segment has at the moment those margins don’t look quite as good and I continue to be concerned about feedlot returns. Fed cattle prices have fell so much that we have a lot of red ink on current closeout and projections for the next several months continue to show red ink. (Duane) Obviously we have competing meats as well between the pork and poultry industries, that are a part of that mix. Interesting looking at some of the data you’ve shown about total meat consumption per capita. (Glynn) Yea, so we consume what’s produced. It’s important for all listeners to recognize that was per capita consumption just reflects growing production of meats. So, all the major meats beef, pork, chicken, turkey are in the process of expansion. Beef is just kind of the last one that I gain because the longer biological lag, but particularly looking out to 2016 and 2017 we’re gonna produce more meat here in the U.S. that’s pretty clear. The domestic consumer is gonna have more meat available, so per capita consumption is expected to go up. That’s weighing in the market some. That’s not necessarily new news, but the real unknown at the moment is how much we’ll be able to export. So, high U.S. dollar makes it harder for us to export. It just makes our products more expensive globally. And in 2015 we’ve had lower exports. If that continues into 2016 when we have more meat being produced here then that will get to be bearish. If that eases and we’re able to export more that could turn into a bullish factor. (Duane) Obviously it all starts with the cow/calf sector as far as how many feeders eventually are available and then fed cattle as well. Looking ahead we’ve talked about expansion. What do the next couple of years look like? (Glynn) So I shared specific numbers-heifer retention as a percent of the breeding herd in 2014 to 2015 were two of the three largest years in the last 30 years. I only share that because we’ve pulled the trigger on expansion like I said three or four times during our talk, as long as Mother Nature allows it, and it was raining during my talk so it’s consistent with that, was we’re gonna continue to expand the herd. And I showed a chart on typical cattle cycles When we’re in an expansion phase, it tends to last three to six years depending on the exact cycle. At the end of the day, the really positive margins of the last couple of years couple of history of cycles, if you like, I think we’re gonna continue to expand the herd and then therefore the calf crop for another three to five years, as long as Mother Nature keeps raining through most of the cow/calf country. (Duane) Well, our thanks to Glynn Tonsor, Ag Economist at Kansas State University, speaking at the KSU Beef Stocker Conference in Manhattan. Jamie we’ll send it back to you in studio.

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