The beef market has long been tied to the overall economy: the better the economy, the higher the selling price for cattle. Consumers looking to trim their budgets are generally reluctant to pay high beef prices, instead gravitating toward lower-cost poultry, pork and seafood products. As a result, the decrease in demand took a toll on cattle earnings: In 2009 and 2010, cattlemen saw a significant decrease in revenues with average cattle prices dipping by $140 a head. It also decreased the overall herd size, which is now at the lowest level it’s been since the early 1940s.
Thankfully, as the economy steadily improves, so does demand for beef and the overall value of cattle. Experts are expecting a significant increase in the prices for cattle, which is great news for the farmers wishing to increase the size of the herd, invest in new farm equipment and begin recouping the losses of the last half-decade.
Corn Prices to Play a Significant Role
Increased demand is not the only factor contributing to the rise in cattle prices and confidence in expanding the herd. After several years of drought and subpar weather conditions, corn animal feed prices were at record-high levels, around $4.50 per bushel.
If the predictions regarding the weather transpire and current weather patterns hold steady, the 2014 corn crop could prove to be one of the best crops in recent memory. As a result, corn prices are expected to drop considerably, to an average of $3.80 to $4.10 per bushel. This represents significant savings and will allow ranchers to receive a larger profit. Also helping with the reduced feed costs is the expected drop in hay prices.
Although the demand for beef is lower today than it was 40 years ago — the average American now consumes just 50 pounds of beef annually as opposed to 90 pounds in 1970 — there is still a need to expand the herd. As a result, cow-calf producers are going to see their highest profits in nearly a decade, with most earning around $400 per head. Ranchers who reduced their herds’ size in the face of decreased demand and low prices are looking to rebuild, making cow-calf production one of the greatest growth opportunities today.
Another piece of good news for ranchers this year is the rapid expansion of foreign markets. There is strong demand for beef overseas, particularly in Asia; by some accounts, the export market alone is enough to support major growth in the American beef market for several years to come.
Taken together, the increased demand, lower feed prices and need to increase the herd are all signs this year will be a banner year for the livestock industry. While no one can predict the future with absolute certainty, the signs are positive and the ranchers have every reason to be optimistic.