A student works with beef cattle at the ISU Beef Teaching Farm. Larger image. Photo courtesy of Iowa State University College of Agriculture and Life Sciences.
AMES, Iowa – For the first time in years, the pendulum is swinging back toward profitability for the American cattle industry, according to an Iowa State University cattle markets expert.
Historically high corn prices during the last several years drove up the cost of feed for U.S. cattle producers, pushing the industry into the red. But with corn prices falling during the second half of 2013, cattle producers are looking for light at the end of the tunnel, said Lee Schulz, an ISU Extension and Outreach livestock specialist and assistant professor of economics.
“A lot of things still need to go right in 2014, but at least from the standpoint of market conditions, there’s the potential for profitability,” Schulz said. “In years past, producers were mostly in survival mode, and now producers are talking expansion in the industry. There’s interest in building new facilities and growing the herd.”
Schulz said the ISU estimated livestock returns series, a monthly barometer of livestock markets, showed that feedlots made money on cattle sold in October, breaking a long streak of monthly losses. He said Iowa cattle producers are particularly well positioned because of the proximity and availability of corn and corn co-products that go into cattle feed.
Combined with softening corn costs, tight supplies have driven up feeder cattle prices, benefiting cow-calf producers but creating headaches for feedlots as they try to outbid one another to fill up bunk space, Schulz said.
The tight supply arose over the last few years as producers culled their herds to deal with severe drought and the high cost of feed. But don’t expect cattle producers to ramp up production immediately to take advantage of improving market conditions, Schulz said. It takes more than a year to bring a heifer calf into the breeding herd, and the biological realities of raising cattle make it impossible for the industry to turn on a dime, he said.
“We’re several years off from building the herd with increased calf crops and increasing cattle supplies,” Schulz said. “A lot of the supplies are pretty certain at this point. It’s the demand that’s uncertain.”
But for an industry beset by consistent losses since the beginning of the national recession, Schulz said he’s noticed a change in mood among some producers.
“We’ve been talking about feed prices for so long – how it’s been such a drag on the industry – but it’s becoming a better situation,” Schulz said. “The market incentives are starting to materialize such that we have the potential to start building the herd.”
