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Agrimarketing : June 2008
June 2008 ¦ AgriMarketing 45 T he profitability of pork, beef and milk production is cur- rently under assault from a fac- tor livestock operations have rarely dealt with in the past and never for an extended period of time — record-high feed costs. BEEF CATTLE Even though feeder cattle prices have been at or near all-time highs for more than four years, there has been a modest year-to-year decline in beef cow numbers in the U.S. since 1996. The primary reason for gradual shrinkage of the beef cow herd is a reduction in pasture land. An esti- mated 20 million acres of grassland has been lost to crop production and urban sprawl since 1970. It is very unlikely this trend will change, so a strong recovery in beef cow numbers is unlikely. Even though fewer calves are being raised, total beef production has remained at historically high levels because feedlots are feeding cattle to heavier weights. Cattle feedlots are in a some- what more favorable position to deal with record high corn prices than hog producers because they have more flexibility. Cattle can be back grounded and feedlots can rely more heavily on Distiller’s Dried Grains with Solubles (DDGS) as an alternative feedstuff than hog finishers. Also, in anticipation of a slightly smaller calf crop and fewer cattle going on feed, the deferred live cattle contracts are trading well above $100/cwt. If cattle feeders keep a close eye on costs, including the cost of replacement stock, 2009 can be a reasonably good year. HOGS To get an accurate picture of what’s happening in the pork industry you must look at the North Ameri- can swine breeding herd. That’s because nearly 10% of the hogs processed in the U.S. today are imported from Canada. Record high feed costs and the weak U.S. dollar have hit the Cana- dian swine industry hard and in April, Canada’s breeding herd was pegged at 4.6% smaller than a year ago. When combined with USDA’s March count of the U.S. sow herd, the North American breeding herd is slightly smaller than a year ago. A federal program to reduce the Canadian sow herd by another 150,000 head or roughly 9% is cur- rently underway. Sow and gilt slaughter data indi- cates some liquidation is underway in the U.S. However, an amazingly strong spring price rally despite record shattering production appears to have rekindled some optimism among hog producers. Sow and gilt slaughter totals have declined the past few weeks. Given the amount of sow herd liquidation that has already taken place in Canada and appears to be on the way in the U.S., it is very possible hogs will average more than $80/cwt on a carcass basis for all of 2009. You can count the number of times hog prices have been that high even for a short period of time in the past on your fingers. Unfortunately, if you assume $6 corn, many farrow-to- finish oper- ations lose $25 and more per head at that price level. Without highly efficient pro- duction and prudent price risk man- agement of both the income and expense side, hog operations will experience an equity drain. DAIRY After bottoming in 2004, the milk cow herd has seen modest growth the past few years. The January all- cattle report showed a 1% increase in milk cow numbers from a year earlier and a 3% jump in milk replacement heifers. Recent modest expansion of the dairy herd has been in response to strong demand, which has been dri- ven in large part by rising popula- tion. But most of the increase in total milk consumption over the past few decades has been satisfied by increased production per cow. It has just been in the past 8 or 10 years that stability has returned to the milk cow herd. The profitability outlook for milk production into next year is dicey. There is the possibility of $20/cwt milk prices thanks to robust demand and the likelihood of a moderate drop in production. However, using the futures markets as a price discov- ery tool, the milk:feed cost ratio is expected to be at or below 2:1 for the foreseeable future. This ratio needs to be at 3:1 or higher to ensure profit milk production. AM LIVESTOCK ECONOMIC OUTLOOK by Doug Harper, Brock & Associates, Milwaukee, WI; e-mail: email@example.com Harper
July August 2008
Canadian Agribusiness Employer Guide 08