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Liquidation could lead to increased beef profit

Liquidation could lead to increased beef profit

Missouri cattle

Kevin Good, with CattleFax, says tightening supplies and strong export demand should improve beef producer profitability going forward.

Speaking on a Zoom event sponsored by Zoetis July 30, Kevin Good says cattle producers might have some reasons to be optimistic going forward.

Good, vice president of industry relations and analysis for CattleFax, says he first looks at the cattle supply situation, which is seeing decreased numbers.

“We are in the midst of the third year of liquidation,” he says.

This comes after a half-decade of building up the national cattle herd.

“With the five years of expansion, we still have plenty of cattle in the system,” Good says.

The long-term, 30-year trend has been gradually increasing beef production, although that fluctuates over time based on a variety of factors, he says, such as drought and market conditions.

After a period of decline leading up to the ’90s, beef demand began increasing, and it is currently at its strongest level in 30 years. Good credits improving meat and carcass quality for some of this demand increase.

“A much higher percentage of the cattle grade Choice and Select than they ever have,” he says.

Good is continuing to watch the drought conditions out West and in the upper Midwest. He says La Niña conditions are ongoing but seem to be improving, which could help the weather situation. He says the drought is causing some liquidation, although it has not been at a dramatic pace. Still, beef cow slaughter is up 10%. He expects continued liquidation and stronger calf values as the calf crop gets smaller. Tighter supplies support higher prices, he says.

“Calf values are going up, and they’re going to be at better levels than they have the last few years,” Good says.

On the feed cost side, he says they are projecting an “adequate” corn crop, which could push corn prices lower, although with strong demand for corn, prices will likely not fall as much as cattle producers would like.

Good eventually expects the cattle liquidation cycle to end.

“We expect this to turn back because beef cattle are still profitable,” he says.

Cow numbers are still not as low as 2014, when they bottomed out following the liquidation sparked by the historic 2012 drought.

On the dairy side, Good sees growth.

“It’s an industry that, generally speaking, is a growth industry,” he says.

Strong exports are supporting milk prices. The large dairies continue to have advantages, Good says, with their scale, use of vertical integration and willingness to adopt new technology and ideas. These include use of robotics, beef-dairy cattle crossbreeding and retaining ownership of calves before selling. The 20-year trend has been more dairy cows.

“The dairy industry is becoming much more efficient,” Good says.

Beef exports should continue to be strong. Good says CattleFax is projecting beef exports will be up 15% in 2021, and that will be key to growth.

“If we’re going to grow, we have to rely on the global stage,” he says.

However, good domestic demand has also been supportive.

“By and large, domestic demand has been stout,” Good says.

One concern has been packers holding most of the leverage right now, although Good says more packing plants being built will likely shift that some in the coming years.

“We are in a position to see that leverage begin to come back to the cattle producer’s hands,” he says.

Overall, Good is optimistic about what profits cattle producers could see going forward.

“Things are starting to pick up,” he says. “That’s the way we’re seeing it. There will be a lot more profitability going forward in the cattle industry.”

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Ben Herrold is Missouri field editor, writing for Missouri Farmer Today, Iowa Farmer Today and Illinois Farmer Today.

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