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Ellis: Watch for Iowa cattle numbers to fall

By Staff | Mar 4, 2011

Shane Ellis, an Iowa State University livestock economist.

Following what he called “an overall profitable year” for cattle and swine producers, Shane Ellis, an Iowa State University livestock economist, said that 2011 holds clouds on the horizon that could dampen their bottom lines.

Nevertheless, Ellis said, “Even though things are tight, they aren’t so bleak as 2009.

“But it’s time to play it smart and make things work. There are a lot of dynamics that people can do, but this is not a ‘gimme’ business.”

At issue, Ellis said, is that all livestock feeders are looking at higher feed costs and, in the case of beef producers, higher replacement costs to restock the feedlot.

Record calf market

Replacement cattle futures prices closed on Feb. 25 at $129.82 for march 11 and $131.62 for April 11, numbers that few would have anticipated a few years ago.

The most recent U./S. Department of agriculture cattle inventory showed that iowa was up 2 percent over last year, but Ellis said that will likely not hold for long. By summer, he expects there will be fewer head in Iowa’s smaller feedlots.

The cattle now being fed in Iowa are a result of producers buying up as many head as they could last fall. “If they locked in their feed price,” Ellis explained, “they can see good profits through July.”

However, future fed cattle prices are not guaranteeing a profit beyond that with the replacement costs at a record high – due to a low calf supply – and feed prices growing steadily higher.

In fact the calf supply is so low that Ellis predicted “By midyear we’ll be where no amount of money can buy a calf. In USDA’s january cattle inventory number, beef heifers being retained is down and beef cow numbers are down 2 percent from a year earlier.

“Why build a herd,” Ellis said, “when heifers can be sold at a great price?”

However, Ellis said, that’s not the same story with larger feeders and custom feeders who have payroll to meet, more fixed costs and regulations. An empty feedlot for them could be more costly in the long run than losing $50 per head on high-priced replacements.

“Smaller producers have more flexibility, he said. “Cattle is one part of enterprise on the farm.”

Dairy numbers on hold

For now, dairy cattle number are holding steady, Ellis said. If that creates a shortage of cull cows, it will drop the supply of trimmed meat products.

Ellis said that as beef prices grow, outdoor grillers will be choosing more ground meat products to cook than prime cuts. But if the ground beef supply drops and cull market prices grow, Ellis explained, and if dairy producers remain getting short pay for milk, more lower-productive cattle could go to slaughter.

During an outlook meeting in Webster County last November, Ellis predicted that the 2010 profit average for the year would be around $50 per head. Although that’s better than 2009’s $25 per head loss, he said, “It won’t be enough to turn the beef supply around” in 2011.

Looking farther ahead, Ellis said he expects cattle production in the U.S. will continue to contract until 2014.

During 2011, he expects fed cattle prices will average $90 to $105 per hundredweight, corn prices to average $5.50 and feeder cattle prices to average $111 to $118 per cwt.

ISU’s yearling cattle crush margin, tabulated on Feb. 23, anticipates a five-month profit loss period from August through December. The chart expects returns to drop below the $150 break-even point during that period. Starting in January 2012 returns are predicted to reach $161.48 and grow to $226.28 per head by June 2012.

If markets hold the same through the summer, the margin chart anticipates returns of $161.48 in

Swine numbers to go up

The pork supply has been good, Ellis said, even though there has been a reduction in farrowing numbers and retention of breeding animals. Ellis credited this with increased efficiency in pigs per litter, pigs saved and heavier weights when finished hogs go to market.

In 2010’s fourth quarter, Ellis said, “we had more hogs and they were heavier than we expected. 2010’s corn crop was better quality than 2009’s and the pigs gained quicker and got to the packer more quickly.”

He predicts an increase in hog numbers during 2011 seeing that the industry is working hard to increase exports. “Maybe this year we’ll get over the May 2008 inventory,” he said.

Still, a lean profit time looms through the fall of 2011 for swine feeders, according to ISU’s hog crush margin as it was tabulated on Feb. 23. Starting in September, the crush margin will return less than $40 per head, which is considered the break-even point for pigs. returns of $0-plus per head is predicted in may, June and july 2012.

Last November, Ellis told a Webster County audience that farrowing intentions were up 0.5 percent from December 2010 to February 2011, most of that in Iowa.

With average litter size at 9.81 pigs, he wonders if this is an early indicator of an expanding pig crop.

“The first quarter will tell for sure in 2011,” he said.

Concerning exports, Japan continues to be the largest purchaser of Iowa pork, followed by Mexico, Canada and Russia.

China’s exports were up in 2010, but Ellis said that it’s not likely to continue, since China has a policy that it must be self-sustaining in pork production in the near future.

“China currently produces six times the amount of pork than the U.S.,” Ellis said.

Contact Larry Kershner at (515) 573-2141 or kersh@farm-news.com.

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