Lee Schulz, a cattle market expert at Iowa State University, said earlier this week that two years of herd liquidation as a result of drought would mean a 4%-6% drop in cattle slaughter numbers for 2013. He added that production was likely to decline further this year, with some predicting a 2%-4% drop in the calf crop, which would mean the lowest US calf crop since 1942.
If this happened, he said, the “biological realities” of raising cattle would mean that tight supplies were virtually guaranteed to continue in 2014.
“We know how small the herd is nationally, and, because it takes considerable time to bring a heifer calf into the breeding herd, it would take some time before producers could even begin to grow their herds,” he said. “Even if the right profitability incentives are in place for producers to begin expanding, you probably wouldn’t see overall growth until 2015,” he said.
Schulz said the drought would have the biggest impact on supplies in the near future, with heifer retention possible at the beginning of 2013 if conditions improve. However, he warned that even with this recovery, historically low levels of supply in coming years were likely to push prices to record highs, and could put consumers off buying beef.
Speaking to Globalmeatnews.com, Dennis Smith, broker with Archer Financial Services, agreed production was likely to decline in 2013 and 2014. “I’m expecting production to decline this year by 4.5% and perhaps be down next year by the same amount, perhaps as much as 5%,” he said, although he added that supply would be boosted by heavier cattle as the result of a mild winter on the US Great Plains.
“Cattle have performed very well, with feed conversions very high,” he said.
He added that a successful corn crop could lead to a drop in corn prices, which would in turn encourage heifer retention at the end of this year, or early 2014. However, he pointed out that this would reduce beef supplies further in the short term, pushing up prices higher.
Smith predicted that tight supplies could push prices to an all-time high of $1.30 per pound. “The springtime rally could see the cash move as high as $1.40,” he added. “Longer-term, I visualise prices moving higher than this, as production continues to drop off.”
However, he said that he believed US consumers would be willing to pay higher prices for beef. “Because of mark-up, prices may not change drastically at the high-end hotel/restaurant end of the business. Food companies will have to package beef differently to mask the high prices, and they will. Our export customers will not hesitate to purchase US beef despite the high prices. I’m guessing that pork and poultry prices will be moving higher as well,” he said.