Beef Buzz News
KSU's Glynn Tonsor Says Export Markets May Provide Incentive for Cow Herd RebuildingTue, 22 Jan 2013 17:18:02 CST
In 2011 market incentives were such that it looked like a rebuilding of the cow herd was imminent, then drought hit hard in Kansas, Texas, and Oklahoma. Mama cow numbers then fell even further. The trend continued as the drought persisted throughout 2012. Long-term weather forecasts predict the drought may continue. So when will we see herd rebuilding?
Extension Livestock Marketing Economist Glynn Tonsor of Kansas State University says it’s going to take a substantial incentive to interest cattle producers in adding mama cows back to their herds.
“It used to be a $100 per cow expected profit trigger to expand the herd. If you add uncertainty and risk to a situation, it’s going to take a bigger incentive than that $100 per cow to get the typical producer to pull the trigger. I don’t know if a hundred bucks is sufficient to expand the herd anymore and nearly everybody has a different threshold. I’m using 100 there as an example. The magnitude increase from that varies a lot across producers. And, underneath that, has a lot to do not just with their cost situation but how comfortable they are with this higher uncertainty; I always use the term ‘new normal’ in the environment, the new paradigm, we work in today.
“Those that are more comfortable with that or think that they can manage through that more than average are the ones who will do that expanding in 2013 and going forward.
“Other producers who aren’t as comfortable with that are going to be either status quo or, over time, fade out. The net effect of those two different groups, if you like, dictates who is producing beef in this country for the next decade.”
While some risk factors in producing beef cattle are known, there are other factors, like the “pink slime” controversy that are impossible to foresee.
“Those are next to impossible to predict,” Tonsor says, “I also try to highlight that they are very important. And, again, that can be frustrating to producers because the dictate market conditions and they can’t control them, but this is not the first time something like this has happened.
“If we look to the pork industry, this H1N1 discussion, there’s lots of parallels of this that continue to come up. What I’m trying to highlight to producers is the broader theme of the public asking more questions about how their food is produced, having access to more information-both accurate and inaccurate information-than we’ve ever had before and higher meat prices in general will trigger more interest in asking more question. In itself, higher meat prices will trigger interest in new technologies by producers to reduce costs as well as, maybe, more concerns about the technology by consumers.”
The challenge is to give consumers the information they need to keep their confidence high and drive consumption higher. Tonsor says, however, that beef consumption appears to be headed lower this year.
“We’re on the pathway for per capita consumption to come down in a year-over-year sense, both in 2013 and 2014. That’s kind of set in stone, if you like, from the cattle supply situation. What’s not known is what will the smaller consumer base that is consuming that pay for that product?
“What I think is underway there is the shift isn’t just everyone of us who consumes beef is consuming four percent less, you have a certain number of households who, for all intents and purposes, are going toward zero beef consumption because they’re being priced out of the market or, relative to the value that they see in it, they are no longer consumers.
“So, the real story, I think, is not how will per capita consumption change because that’s what often comes up because that’s dictated by supplies, but it’s what’s the value in the beef and who is the one who’s going to be buying it. That’s going to be your higher income segment. It’s going to be the ones who have not had the unemployment struggles over the last few years. It’s going to be those that see value in the new cuts that are being derived by the industry and so forth. The net of that will dictate who will remain as a consumer and everybody who’s not in that bucket, which there are several who aren’t-will be the ones who are consuming less beef and helping drive that four percent or five percent reduction in 2013 in beef consumption.”
Tonsor says he sees export markets being especially helpful in growing demand because income growth outside the U.S. will be stronger than inside the country. He said that the meat will move toward its highest profit outlet. He says that trend will continue through 2013 and 2014.
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