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Angus University

Angus University

CattleFax Shares Market Outlook

Lowered cattle prices this fall are disappointing, but not a disaster, says CattleFax analyst Lance Zimmerman.

OVERLAND PARK, Kan. (Nov. 4, 2015) — Lance Zimmerman believes farmers and ranchers have a divine calling. He cites Psalm 104, Verse 14 as evidence. That’s the one noting God’s provision of the ways and means for men to “bring forth food from the earth.” Of course, the Lord never said it would always be easy.

During an Angus University session of the National Angus Convention hosted Nov. 3-5 in Overland Park, Kan., Zimmerman allowed that calf and feeder-cattle marketing in 2014 was about as easy as it gets. Cow-calf and stocker producers reaped a harvest of record-high prices. More recently, prices have been less favorable.

Feeder-cattle marketing in 2014 was about as easy as it gets, said Lance Zimmerman of CattleFax.

“The industry just came out of a perfect storm,” said Zimmerman, explaining how prolonged drought in the central United States was a “market maker.” Reduced supplies of grazed and harvested forages led to high hay prices and a dramatic reduction in national cow numbers. Corn prices were high, too, spurred not only by increased demand for livestock feed, but competition from the ethanol industry.

“It resulted in supply shock and demand shock for the cattle industry,” Zimmerman added, noting how fewer cows, smaller calf crops and fewer cattle going on feed translated into smaller beef supplies. Meanwhile, U.S. beef exports remained relatively strong. Domestic demand held up far better than some pundits expected, despite soaring retail beef prices. Competitive protein prices were higher, too, as the pork and poultry industry wrestled with problems that whittled away their product supplies.

According to Zimmerman, all commodities were riding a wave of high prices. For the cattle industry, the wave broke during the latter part of 2015. It’s disappointing for cow-calf producers, naturally, but not a disaster. The lion’s share of calf sellers remain in a profitable position, just not as profitable as last year. On average, said Zimmerman, calves will net about $350 per head, instead of last year’s $500.

Things are getting tight for stocker operators, and it’s really tough for cattle feeders whose pens house high-dollar cattle, he said. Things won’t improve anytime soon.

“In the near term, cattle feeders are the big losers, but most do a pretty good job of managing their risk,” stated Zimmerman. “Beef packers are barely keeping their shirts on.”

Zimmerman thinks we’ve seen the lower side of calf prices, at least for the next 12-18 months, and prices for the year will average somewhere around $250 per hundredweight (cwt.). However, he expects the average to pull back by about $40 per cwt. next year. The long-term trend is toward lower prices. The upper limits of fed-cattle prices are likely to be around $170 during the next 12-18 months. Some price volatility is expected at all levels.

Regarding heifer retention, Zimmerman said the industry appears to be on track for the largest year-over-year percentage increase in heifer numbers since 1959. The hold-back of heifers in 2015 is estimated at 1.3 million head and retention of another million breeding heifers is expected in 2016.

Angus University was sponsored by Merck Animal Health.

Editor's Note: This article was written under contract or by staff of the Angus Journal, which maintains the copyright. To request permission to reprint, please contact Shauna Hermel at 816-383-5270.