Livestock producers are going through a rather unique period, according to Tim Petry, North Dakota State University Ex-tension livestock marketing specialist.
What makes it unique is that prices for fed cattle, hogs and sheep are at record levels and he predicts this situation of high market prices should continue for a while. The only segment of the livestock sector that is struggling is the dairy industry, with producers facing re-cord high input costs, according to Petry, while the prices for milk are at fairly low levels due to a slumping demand.
But, fed cattle, hogs and fed lambs are enjoying record prices due to high demand and a short supply, since all three segments have had a reduction in domestic numbers for the past few years.
Beef market – Large volumes of beef exports and a smaller cow herd are the main contributing factors to the record high fed cattle prices, Petry said.
“We have reduced our cow herd in 12 out of the last 15 years and that means we have less fed cattle and the export market is booming, and particularly Southeast Asia has really come back in the last year,” he said. “The export demand is exceeding many people’s expectations, especially in Southeast Asia.”
Feeder cattle prices, on the other hand, aren’t setting records at this time, but they have climbed to the point that they were in 2006 when they were record highs at that time which, Petry noted, was before ethanol demand for corn really grew. And although the feeder cattle prices aren’t at record high, they wouldn’t be as high as they are now if it weren’t for the good fed cattle prices.
“We could not have feeder cattle prices the way they are now if it wasn’t for those distant fed cattle futures, which are up there around $117 (per hundredweight) yesterday, which are by far record highs,” he said. “We have been around $105 to $106 on fed cattle and the futures market is saying we are going to be doing $11 or better than that by the end of the year, and that’s supporting the feeder cattle market.”
Lamb market – Lamb prices are also at record highs at this time, and Petry said it is much the same story for lamb prices as it is fed cattle, smaller flocks and increased demand for fed lamb.
“Although in this case it isn’t the export demand, instead it’s a booming domestic demand and lower supplies,” he explained. “We’ve been downsizing the sheep flock for a number of years resulting in less lamb production.
“We have had lower imports last year and probably again for this year; because our dollar is lower it makes other countries less likely to ship lamb to the U.S.”
The average American doesn’t eat a lot of lamb, but there are a lot of ethnic groups and also holiday demand for lamb that has been good.
Lamb is the highest price protein, but it’s eaten for special occasions so dollars aren’t as much of an object there, he said.
Hog market – Hog prices are also doing very well, according to Petry.
The prices in 2010 were greatly improved over the 2009 prices that were depressed due to the publicity over the H-1N flu that was dubbed by many as the “swine flu.”
“We thought there might be some expansion in the swine industry, but the price of corn going up stymied that. So the last Hogs and Pigs Report in December first showed a couple percent less breeding animals, so we are going to have lower pork production this year, and again the export market is just skyrocketing,” he said.
Again, a lot of export activity is focused on the Southeast Asia region, but especially China and Hong Kong.
He also noted that Korea has recently had trouble with Foot and Mouth Disease, which has resulted in the disposal of a sizeable number of breeding animals in that country.
Since Korea is a big consumer of pork, Petry expects they will be looking to the U.S. to replace part of that pork supply, since we are a large exporter of pork.
Pork demand domestically has also been increasing as it is a cheaper meat than beef or lamb.
“Just yesterday (Jan. 31) pork futures set an all time record high, closing over $100 on the lean hog futures, so there is a lot of optimism in the pork industry,” he said.
The dairy situation – The dairy industry is the only sector that isn’t doing well at this time, and Petry said that is due mainly to a large supply of dairy products that’s suppressing the market.
The nation is currently looking at record dairy production and the Jan. 1 inventory report indicated more dairy cows than we had last year and even more replacements and the milking herd is producing more per cow, and demand is starting to come back, both domestically and in the export market.
But the high feed costs have really impacted the dairy industry, since they need to feed high quality feed if they want to maintain production levels.
They aren’t able to substitute lower quality roughages in part of the ration like the beef cow operator is able to do.
“Dairy prices aren’t at record highs,” he said, “and yet we are probably looking at record high feed prices, so the dairy industry is still struggling. We are going to see more dairy cow slaughter this year than last year. The dairy cows are very efficient and we just have a few too many cows yet at this point.”
What’s the future hold? Looking into his crystal ball, Petry is confident that these relatively high prices will probably be around for a while.
“We have downsized the entire livestock sector from poultry to lambs to swine to cattle and that’s just a normal result of when an input cost goes higher, which is in this case corn,” he said. “We had $2 corn for many years and that’s what the broiler industry was built on, the hog industry and the cattle feeding industry. We then ratcheted corn up to $3.50 and the normal chain of events that occurs then is that they downsized until they could make a profit at $3.50 corn.
“Now the big question mark for the entire livestock sector is, what’s corn going to do now? Are we going to another plateau?” he asked.
“I think we are going to see an extended period of good livestock prices, particularly on the slaughter livestock side, because we have less available and the export markets increasing. But from the feeder cattle standpoint it all depends on corn.” he continued.
“We have an exciting livestock industry now and the big unknown, like it is on the grain side, is corn and what are we going to end up with for corn production this year.”