Beef Buzz News
Supply and Demand Will Determine Cow Herd Rebuilding as Drought Eases, David Anderson Says
Tue, 15 Jan 2013 12:15:30 CST
Dr. David Anderson talks about rebuilding the mama cow herd after the drought.
Some areas of the Southern Plains are starting to come out of the drought, but some are remaining locked in. Eventually, rain will come and the drought will ease. The question will then be how to best go about rebuilding the cow herd.
Dr. David Anderson, professor and economist in Livestock and Food Products Marketing with the Texas A&M AgriLife Extension Service addressed livestock producers from across the country during an issues conference at the American Farm Bureau Federation’s 94th Annual Meeting. He says it will take time to rebuild the herd, and that its recovery is also a matter of supply and demand.
“The first thing right off the bat is when you go through a severe drought, it doesn’t turn around overnight. It can take several years for ranges and pastures to recover. And that’s really where it starts with that grass. So the first thing we have to do is get those range and pasture conditions to recover. If we’ve got that condition in place then, given where prices are, we’ll start seeing some expansion in cow numbers.”
That expansion can only come in one of two ways, Anderson says.
“We’re going to kill fewer cows or hold back more heifers and do a combination of that. As soon as we start expanding by pulling those heifers out of beef production and into the breeding herd, we’ll see an even sharper reduction in beef production and an even higher pressure on prices. You face a choice with those heifers: ‘Do I send them to beef or do I keep them to replace?’ Right now prices have been so good, it’s been pretty attractive just to go ahead and get rid of them in the calf price side.
“So, really, when we hit expansion, and I believe we will when we get over the drought, then I think we’re in store for much lower production on the beef side and even higher prices.”
That’s higher calf prices, higher yearling prices, higher fat prices eventually and that does mean higher beef prices at the retail level. Anderson said it has to be that way.
“The only way you’re going to get lower prices for consumers is to increase production. And the only way we can increase production is to break the drought so we can hold back more animals so we can start increasing production so that, later on, consumers can get the benefit of those lower prices. But, it takes high prices that are profitable so that producers have the profit margin to be able to expand, to be able to produce more. If they’re not making any money, they’re not going to try to make it up on volume. It just isn’t possible. We’re going to produce less and get higher prices. That market sends us the message: higher prices are there to get us to produce more.”
Anderson said producers will be assisted in their rebuilding efforts by the law of supply and demand which is working in the corn markets. Corn prices reached up to $8 per bushel last year due to the drought. Higher feed costs led to increased production costs for cattle, pork and poultry farmers, resulting in increased retail prices to consumers. However, Anderson projects that as more acres of corn are planted in 2013, lower prices and decent yields may bring the market back into equilibrium, provided the drought subsides.
He also said that as production goes up, retail prices won’t necessarily bottom out because export markets will continue to be a strong outlet for livestock producers.
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