Cattle business in 2012 will see higher prices, consolidation

The good news: higher cattle prices. The bad news: fewer producers to take advantage of them.

Speaking to the annual Tiffin Conference at Lethbridge College last month, veteran cattle-market analyst Anne Dunford reviewed some of the record cattle prices in 2011 and predicted even higher for 2012. But she pointed out that those prices are the result of diminished supply caused by producers leaving the business after several years of low prices.

“It’s pretty obvious why cow-calf producers have done what they’ve done — an exodus out of the industry. It’s been a long time since there’s been any money made and it’s pretty hard to stay in this business if you aren’t making some money.”

Dunford reeled off some of the numbers from 2011. Fed cattle averaged $106.27 per hundredweight, up from $89.13 in 2010 and breaking the previous record of $102.82 in 2001. D1 and D2 cows also set a new record, averaging $70.31, up from $54.39 in 2010 and beating 2001’s record of $63.99.

At $123.24, feeder steers were $3 shy of breaking the $126.28 record set in 2001, but were still up more than $20 from last year. Likewise, steer calves were just shy of the $157.59 record in 2001, coming in at an average of $151.50 in 2011, up $30 from 2010. “I think we’ll break both of those records in 2012,” Dunford predicted.

On the beef side, the average for AAA cutout in 2011 was $172.48, under the 2001 record of $197.68, but up 19 per cent over 2010. However, overall, retail beef set a new record at $6.09/lb., beating the 2009 record of $5.83.

Shrinking herd

In Canada, the herd has shrunk 21 per cent since 2005, leaving only 4.2 million beef cows, the smallest herd since 1994.

“I think we’re going to be down two per cent still. We started to keep a few heifers back, but we still sold quite a few cows,” said Dunford. “In this past summer’s report we saw about a seven per cent increase in heifer retention or heifer numbers. It’s encouraging but don’t forget when you look at the actual numbers it was 42,000 actual heifers kept, we still shipped 90,000 cows to town. So the offset was still a decline in the overall numbers.”

Dunford said weather will remain a wild card in 2012, noting that there are about 10 million cows in the area of the U.S. affected by record drought.

“The U.S. holds about 30 million, so about a third of the U.S. cow herd is in this area that has been so severely impacted here in 2011. It’s big,” Dunford said.

Despite some recent rains, conditions have stayed dry through the winter. If the same region falls victim to another severe drought, it may prompt further liquidation of the U.S. herd, Dunford said.

Last year’s drought forced many ranchers to bring entire herds to town. “Would cull cow prices have been higher had the drought not happened? Pretty well, I think you can assume that to be the case,” said Dunford.

Alberta’s herd has diminished by 25 per cent since 2005, or 19 per cent since 2002, and is currently the smallest since 1991 at about 1.66 million head. Dunford believes the industry is moving out of the liquidation phase and into consolidation, and that once that stage is over and prices remain viable, the industry may start to expand again. She said there was a $75- to $100-per-head profit in 2011, and that number is predicted to range between $100 and $150 in 2012.

Higher prices due to increased demand means there’s simply not enough feeder cattle hitting the market. Dunford said the current size of the industry was built upon feeding approximately 3.5 million head of cattle in Canada, but there were only 2.9 million head to go around in 2011 and she sees 2.8 million in 2012.

“It’s going to mean some packers killing fewer cattle, it’s going to mean some auction markets are moving fewer cattle through the system, it’s going to mean fewer and fewer truckers being able to move the numbers,” said Dunford.

“And I think this could drive some further consolidation in the industry. We’re not all going to be able to run the hotels full — it ain’t gonna happen.”

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