Due largely to the Southern Plains drought, the industry underwent the largest cow slaughter since 1996, and second largest since 1986. Texas saw its herd decline by 13 percent, Oklahoma by 14 percent and New Mexico by 11 percent, Good noted.

But states in the Northern Plains, such as Wyoming, Iowa and Nebraska, saw inventory go up, showing that with improved moisture on pasture, there’s greater ability to expand. Heifer beef replacement is also showing bump upward, Good said, especially in the northern states.

Cattle on feed numbers reflected the drought factor, with Jan. 1 figures for operations with at least 1,000 head going up, but smaller feedyards down 10 percent. Good said those trends reflect the regional nature of smaller feedyards.

Slaughter of steers and heifers adds to the supply picture, showing an average annual reduction of 1 percent since 2000. Good said that leads to a “reduction expectation for this year and next of about 8,000 head a week.”

Good said the feeding industry will see some extremely high breakevens this year, between $130 and the mid-120s, which will lead to higher carcass weights. “As we go through the year, profitability margins will be squeezed, so we’re going to have a tendency to feed cattle longer this year than compared to last.”

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The per capita beef supplies are estimated to be down 3 percent, he said, adding that even if expansion is seen over the next 12 to 18 months, the supply could still go down an additional 4 percent, with demand picking up globally.

That will create a market “bullish for prices,” Good explained. “With the supply side of the market in the next couple years, we’d all be in agreement it’s going to be a friendly bullish outlook.”

Good said domestically there is a small rise in disposable personal income, but it’s not back to pre-recession levels due to high unemployment and slow growth in wages.

In 2011, the retail prices were up 10 percent for all classes of cattle, and wholesale prices were up 15 percent, although the margins were tighter going through the packer segment. Estimates for retail prices are expected to go up 8 percent in 2012, good said.

As for the choice-select spread that grew in the late-half of 2011, Good said it “will stay wider than it has, especially over the last four or five years.” But he added that quality grades will be “tough to get out of the cattle, especially in the first half of the year.”

Good said the yearling average of 150 per hundredweight on 750-pound steers was 15 percent above levels a year ago, and the price is probably going to be 15 to 18 percent higher in the coming year.

“We’re going to have a lot of five-weight calves that bring in $2 a pound this year, that’s a $1,000 coupon for a calf,” he said. “That old rule of thumb, you can pay for the cow two times the calf, that’s getting you 2,000 on your top-end breeds.”

The optimism from a price standpoint, however, breeds extra caution for profitability measures, he said. The feeding industry, if working on cash-to-cash basis could see some negative margins this year, which will require more risk management. The stocker/backgrounder margins seen over the past decade will also be tighter because of high calf values and high leasing rates on land.

“The bottom line is the cow/calf producer is in the driver seat,” Good said. “He is this year and probably will be for a number of years to come."  end_mark

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TOP RIGHT: CattleFax senior analyst Kevin Good. Staff photo.