Cattle feeders get input pricing pressure warning

by Meat&Poultry Staff
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ONAGA, Kan. – Last month, market analyst Dan Basse, AgResource Company, warned cattle feeders of continued upward pressure on input prices while also pointing out the “bright spots” of increasing exports and high cattle prices while speaking at the Feeding Quality Forum in Omaha, Neb., and Garden City, Kan. The meetings were co-sponsored by Pfizer Animal Health, Certified Angus Beef LLC (CAB), Feedlot Magazine and Purina Land O’Lakes.

“It’s another year of struggle between an economic landscape that’s less than favorable – we don’t see domestic beef demand rising this year – and this new worry about the price of feed and forage,” he said.

Utilizing field agronomists, weather data and historical trends, his company predicts an average corn yield of 148 bushels (bu.) per acre this season. Southern drought, combined with very high nighttime temperatures in the upper Midwest, all contribute.

Global stocks of corn are tight, and that’s why he sees a trading range of $6.50/bu. to $8.50/bu. going forward.

The extended drought in the Southern Plains is pushing forage and pasture prices upward. The drought has already devastated those regions, but if it extends into 2012 its impacts could be magnified for the entire beef industry. The decline of the US cowherd is rapidly intensifying – a trend that’s being realized south of the border, too.

“Mexican cattle imports into the US have been very high,” Basse said. “I don’t think we can continue that trend, though.”

Their domestic per-capita meat consumption is increasing. In contrast, the US beef demand has been on a slow decline since 2006. Meanwhile, imports to Mexico have stepped up.

Ag Resource Co. projects exports reaching 12 percent to 13 percent of supply in the near future. As Chinese consumers start encroaching on annual incomes above $5,000, the tipping point for including more meat in the diet, they are a target market.

Feeder prices will stay in the $125 to $140, range and may even climb to $150 in the next year, which means there will be more discerning diners.

“Margin, margin, margin is the new mantra for feedlots if it hasn’t been already,” he said. “It’s just a challenge of margin -– what goes in and what goes out – and how do we manage both ends?”
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