Abnormal Cattle Cycle Hits Herds
08/22/07 11:19
MANHATTAN, Kan. (DTN) -- Cattle producers have seen nine years of profits and in any normal cattle cycle, that would have led to cow herd expansion and falling prices. But we are not in a normal cattle cycle, James Mintert, Kansas State economist told DTN.
"The drought the past several years in Texas and the High Plains through Missouri has curtailed cow herd numbers. A year ago August, I was predicting we'd start to see expansion in 2007 as the rain returned to those areas. But now I don't see any expansion on the horizon," Mintert said.
Rising feed costs are now trimming expansion plans. The cost of summer pasture (lease rates) has increased 16 percent over the past five years, according to Kansas State University survey.
"In 2007, the survey said pasture rental rates were up only 5 percent. But I think they have gone up more for those negotiating a new agreement," explained Mintert. "The survey contains a lot of long-term leases.
"I don't think it's unreasonable to predict a 25-percent increase in forage-based feeding program costs," Mintert said. "The breakeven for calves has gone from a historical $1/cwt. breakeven to $1.15 to $1.17 now and I would say if the grain market stays strong, we'll see a $1.20/cwt. breakeven. That's keeping a lot of cow/calf producers hesitant about expanding their herds.
"The strong grain market puts an intense pressure on landowners to put land in crop production. And the price of alternate feed sources are high," Mintert said. "The cost of harvesting hay will likely increase 25 percent to 30 percent. Fuel and utility costs have doubled."
Using total costs (labor, opportunity cost of capital, depreciation, feed costs, etc.) Kansas State estimates cost per cow at $670 per head. "It used to be $500 per head," Mintert said.
Breakeven for calves next year is estimated at $115 to $118 per hundredweight. "If prices stay in the low $100s, we could see the beef industry actually reduce inventory," Mintert noted.
Lenders may also have an influence in keeping cow numbers in check. "The capital requirement for maintaining the current size of a herd is ratcheting upward. That alone may put the brakes on expansion. If you add the lack of economic incentive to expand, I don't see a lot of lenders allowing cow herds to increase," said Leo Schlitz with the Caldwell State Bank in Caldwell, Kan.
"At $120/cwt. calf prices for 500 to 600 pound steers in 2007, producers are making about $50 to $60 profit per head. That's a far cry from the 2004 profits of $100 to $200 per head," Mintert said. "It's still a profit, but with expectations of rising feed costs, I expect cattle inventory numbers to stay steady."
08/22/07 11:19
MANHATTAN, Kan. (DTN) -- Cattle producers have seen nine years of profits and in any normal cattle cycle, that would have led to cow herd expansion and falling prices. But we are not in a normal cattle cycle, James Mintert, Kansas State economist told DTN.
"The drought the past several years in Texas and the High Plains through Missouri has curtailed cow herd numbers. A year ago August, I was predicting we'd start to see expansion in 2007 as the rain returned to those areas. But now I don't see any expansion on the horizon," Mintert said.
Rising feed costs are now trimming expansion plans. The cost of summer pasture (lease rates) has increased 16 percent over the past five years, according to Kansas State University survey.
"In 2007, the survey said pasture rental rates were up only 5 percent. But I think they have gone up more for those negotiating a new agreement," explained Mintert. "The survey contains a lot of long-term leases.
"I don't think it's unreasonable to predict a 25-percent increase in forage-based feeding program costs," Mintert said. "The breakeven for calves has gone from a historical $1/cwt. breakeven to $1.15 to $1.17 now and I would say if the grain market stays strong, we'll see a $1.20/cwt. breakeven. That's keeping a lot of cow/calf producers hesitant about expanding their herds.
"The strong grain market puts an intense pressure on landowners to put land in crop production. And the price of alternate feed sources are high," Mintert said. "The cost of harvesting hay will likely increase 25 percent to 30 percent. Fuel and utility costs have doubled."
Using total costs (labor, opportunity cost of capital, depreciation, feed costs, etc.) Kansas State estimates cost per cow at $670 per head. "It used to be $500 per head," Mintert said.
Breakeven for calves next year is estimated at $115 to $118 per hundredweight. "If prices stay in the low $100s, we could see the beef industry actually reduce inventory," Mintert noted.
Lenders may also have an influence in keeping cow numbers in check. "The capital requirement for maintaining the current size of a herd is ratcheting upward. That alone may put the brakes on expansion. If you add the lack of economic incentive to expand, I don't see a lot of lenders allowing cow herds to increase," said Leo Schlitz with the Caldwell State Bank in Caldwell, Kan.
"At $120/cwt. calf prices for 500 to 600 pound steers in 2007, producers are making about $50 to $60 profit per head. That's a far cry from the 2004 profits of $100 to $200 per head," Mintert said. "It's still a profit, but with expectations of rising feed costs, I expect cattle inventory numbers to stay steady."
