With record prices on the horizon for both feeders and fed cattle, it’s a good time to be a rancher.

The 2013-2014 cattle and beef pipeline is a classic tug-of-war between supply and demand, and depending on the analyst, the impetus comes from either.

Bottom line: Every segment of the industry should profit this year. Although higher beef prices are assured in 2014, competition for consumer dollars by alternative proteins will mitigate the retail sticker.

The vital variable now is the price of corn, which is half of last year’s price. It may take a few weeks to iron out the wrinkles in the markets as the federal government shutdown monkey-wrenched the routine flow of crop and livestock information.

The monthly crop report due Oct. 11 was canceled. The USDA announced Oct. 17 that its next corn crop estimate would be Nov. 8.


The missed report was the first since 1866. That date is not a typo.

It is beef demand and reduced supply – worldwide and national – that is driving the market from top to bottom, says Gary Brester, an agricultural economist at Montana State University.

“Prices are being driven by beef demand – domestic and foreign – and on top of that, much lower cattle numbers worldwide.” The 2013 U.S. calf crop is the lowest since 1949, while world production is down 10 percent.

Brester sees the market from the top down. “Beef prices drives the fed cattle, which drive the feeder, which drives the cow-calf producer, “ he says. That illustrates “people being productive,” he adds.

As for corn prices, he sees it as one margin. “The statistical relationship is not as strong as the gut feeling,” Brester says.

Gut feeling or otherwise, feedlot operators like the idea of $4-a-bushel corn versus $8 a year ago.

“Lower corn makes for a strong market,” says Tom Mohr, a feeder west of Billings near Columbus. He produces his own corn silage for his backgrounding operation.

Buying 500-pound and 600-pound steers from the two local auction markets, he feeds to 850 pounds and will sell them in January through March.

Fed futures for that period are running $130 to $134 per hundredweight (cwt), putting them in striking distance of record nominal highs.

Feeder futures are in the mid-$1.60s cwt range.

Mohr prices his feed costs as if buying on the market in determining his cost of production. Silage is $5 to $10 per ton cheaper this year than last.

“It is a limited reduction. Farmers are not going to give it away.” In the feeder business for 21 years, his animals finish in Colorado, Nebraska and Idaho.

Competition for calves is high, notes feeder Norm Haaland. “The packers want to own them all.” Haaland has fed cattle for 49 years at Shepherd.

He says he intends to do more backgrounding this year, although he will still finish some, sending them to Fort Morgan and Greeley, Colorado, and Pasco, Washington.

One of those packers is represented by Bryan Okragly of Billings, Montana, who buys exclusively for Cargill. He purchases cattle strictly from Montana, Wyoming and western North Dakota, he says.

“The genetics of the Montana seedstock produce the best bulls and heifers. That is a proud fact. That produces predictability for the feedlot and the packer.”

The demand for feeder calves depends on rancher quality, demand for U.S. beef, lower prices for grain.

“There should be a strong market for some time to come,” he says, “but grain markets have to behave themselves.”

A kink in that sector may be determined by the price of wheat. A report in the Wall Street Journal on Oct. 17 noted a 40 percent surge in wheat exports from a year earlier led by demand from Brazil and China.

While wheat and corn generally move in tandem, analysts are arguing whether lower corn will drag wheat down.

However, most wheat goes for human consumption rather than animals, implying that the grain prices are on divergent paths right now.

With 18 years of experience, Okragly acknowledges the uncertainties of weather, government actions and policy, cost of feed and the fragility of the world economy.

The snowstorm killing of thousands of cattle in South Dakota serves as an example. He expects rancher heifer retention to continue for longer than normal this cycle, as buying heifers now is costly.

“Feedlots are fighting for heavier calves,” says Cliff Bare, a buyer out of Billings. “There are fewer yearlings, too.”

Favorable factors are lower corn prices, ample moisture foretelling better hay crops, wheat pasture on the southern plains and summer grass, he says.

He notes (on Oct. 11) the CME board had March 2014 and August 2014 feeder futures at $1.69 a pound.

He sees the limiting factor as, “How high the price of beef? Meat (beef) is going to be high for the next couple years although cheaper protein is available.”

That’s a fact, says Randy Blach, CEO of CattleFax in Englewood, Colorado.

“Chicken breasts and pork chops are competition for beef,” he says. “Poultry production is forecast to increase 4 percent in 2014 and pork, 2 percent. Beef is not on an island.”

But the price of hamburger is going to be higher next spring. Forty-five percent of the demand for beef is ground, Blach says.

In March and April, cow slaughter is the lowest of the year. In 2014, 500,00 to 600,000 fewer cows will go to slaughter because grass is available in the cattle- producing regions.

Noting that feedlot capacity in the U.S. is 25 to 30 percent in excess, Blach says there is a danger that operators will bid away their profits because of the high demand for feeders. “That is not going to change in the next couple years.”  end mark

Jim Gransbery is a freelance writer based in Billings, Montana.