This past few months have been just about the most frustrating, confusing, discouraging period to American beef producers in my long and none too accurate memory.
Fat cattle prices have fallen to their lowest levels in the past four years, in a year in which cow numbers are reported to have been declining. This has put a real damper on feeder prices which are a full $10 per cwt. below those of last year at this time. This has encouraged producers to hold back calves to heavier weights in the hope that the numbers situation would clear out and prices would begin to rise. Now everyone seems to be stocked to the ears with heavy calves that have declined in value to a point well below break-even.
I've heard reports of gluts of heavy finished cattle across the entire feeding area, yet on a visit there recently, I was told that most yards in the Texas Panhandle are current in marketings and below capacity in cattle on feed. Reports of huge importations of cattle from Canada and Mexico have been, according to some, the root cause of the problems, and there have even been reports that huge importations of cattle from Central America, Brazil and even Australia were making their way toward the U.S. Mexico border in direct contradiction of the spirit of NAFTA. Such reports have made already jittery producers wail in anguish. Northern ranchers who watch truckload after truckload of Canadian cattle coming into the market are strongly considering legal action to dampen the flow.
Cattlemen, traditionally opposed to government intervention and regulation, are seeking help from USDA and the courts to stifle imports, investigate packer buying practices, label imported meats, demand price discovery and, in general, to become involved in everything they perceive might be causing their problems. This only demonstrates the level of their frustration. Yet, according to USDA, the numbers of cattle imported this year are below those of the same period a year ago, and exportation of beef and live cattle from the U.S. to Canada still remain well above the import totals.
One factor many of us failed to plug into the equation has been the drop in exports that was a result of the financial difficulties in Asia. Another was a decline in the value of the Mexican Peso that caused a drop in shipments of U.S. beef to that country. These factors have had a major effect on the amount of beef we have been forced to absorb on the domestic market. Most of us don't realize just how much domestic beef we have been exporting and how much effect those exports have on the market price of beef in this country. Somewhere, back in some economics course in days of yore, I seem to remember something to the effect that if demand remains static, a one percent increase in supply can cause as much as a three percent drop in the market price of a commodity.
Mother Nature has also had a major hand in cattlemen's' woes. First the most extended drought in recent years plagued all the country from New Mexico to Florida, prompting major sell-offs of cow herds as far north as Oklahoma and Arkansas. This was followed by a deluge of rain that has left the same territory under water -- resulting in the loss of tens of thousands of cattle that literally floated away or were drowned. When grass finally returned to this area after the rains, a plague of army worms, as severe as any in recent history, has forced many producers to hold back on the planting or winter feed crops, insuring a short supply of forage in many areas this winter.
Failure to service debt and resultant bankruptcies are becoming more common by the month as even old-line very substantial operations are dissolved or are selling out. Gloom and doom are the order of the day. This is certainly a time of flux, of change, and U.S. cattle producers are fighting in every way they can think of to hang on and survive over what may turn out to be the toughest winter many of them have seen, regardless of the weather conditions.
Like most people who considered themselves knowledgeable concerning the cattle market, I have been wrong so many times this year about where it was going and what it was doing that I'm getting punch drunk. I fully expected numbers, or the lack of them, to have turned the market around drastically by this time. This hasn't been the case, though there are solid indications that the prices for finished cattle are finally beginning to rise.
My best guess at this point is that by the first quarter of 1999, we should see some definite improvement in prices across the board, though cattle-feeders, badly hurt over the past two years, are going to be reluctant to pay really high prices for feeder cattle anytime soon. It will be awhile before we see five-weight calves bringing a dollar a pound. This predicted recovery doesn't take into account the state of the economy as a whole, nor does it plug in any machinations on the part of the major packers to keep the market suppressed, and you can rest assured there will be some effort on their part in this direction. So, with all this confusion and all these mixed signals, what should a producer who has managed to survive, so far, do to insure his continued existence? What can he do to make the most of any recovery in prices?
The best answer to that is tighter, more creative management of his resources. He needs to pare all unnecessary costs and utilize his dollars in those areas that most directly effect his income, preventive medicine, nutrition, better genetics. Forget the frills, get more, better calves on the ground and market them as aggressively and creatively as possible.
Now is the time, if the money is available, to buy good cows. They are exceedingly cheap in relation to their long-term value. Utility cows were selling last week in the high $20 range and good, baby pairs were going at regional markets in Texas for $500 to $550. If restocking is a question, now is the time to do it.
This is also the time to decide on long-range objectives and to set a definite course for the future. I see real opportunity, over the long haul, for the volume production of replacement females. They are going to be needed during the upcoming restocking stage, and they will be more and more in demand as steer producers move into terminal sire programs.
Good F1 Braford and Brangus cows are going to be in demand and will bring premium prices over the next few years. The ranchers who produce them and have them available will be in the catbird seat. I also see real opportunity in the development and trading up of replacement females. A program of this type offers flexibility and a lower downside than production and can be very profitable if managed properly.
And as always, there will be opportunity for producers of premium steer cattle, calves that can go into the bonus branded beef programs.
In spite of the frustration, the confusion and the seemingly insurmountable problems of the past six or eight months, I have a great deal of optimism about the future. If you've made it this far, don't get discouraged and don't give up, now that things are beginning to turn around.