Transcript Developing Trends in the US Beef Market

Optimizing Cost, Production
and Marketing
1,400
Beef Cow Operations
000 Operations
1,300
1,200
1,100
1,000
900
800
700
600
500
80 82 84 86 88 90 92 94 96 98 00 02 04 06
Source: NASS, USDA
YEARS
55
Percent of U.S. Beef Cow Herd in
Operations with 100+ Cows
54
P
E
R
C
E
N
T
53
52
51
50
49
48
47
46
45
93 94 95 96 97 98 99 00 01 02 03 04 05 06
Source: USDA
YEARS
Change in Beef Cow Operations & Numbers
From 1993-2006
Number operations with less than 99 cows declined 20%
The percentage of beef cows in operations with less than
99 cows declined from 52% to 46%
Number of operations with more than 100 cows increased 9%
The percentage of the beef cows in operations with a 100
head or more increased from 48.5% to 54%
Fifteen percent of the cows are in herds greater than 500
head as of 2006
Weekly Spot Corn Futures
Last winters high of
$4.37 in late February
Last summer’s
low of $3.09 in
late July
U.S. Annual Average Corn Price 1908-2007
$/Bushel
$4.25
$4.00
$3.75
$3.50
$3.25
$3.00
$2.75
$2.50
$2.25
$2.00
$1.75
$1.50
$1.25
$1.00
$0.75
$0.50
$0.25
$0.00
2006-2010
Proj. Range of $3-$4
1973-2005
33 years
Avg. Price = $2.36
1943-1972
30 Years
Avg. Price = $1.27
1908-1942
35 Years
Avg. Price = $0.72
1908 1916 1924 1932 1940 1948 1956 1964 1972 1980 1988 1996 2004 2012
Source: USDA, 2007/08 Dec. projection
Annual Cash Cost per Cow
380
366
360
351
336
340
324
$
/
H
E
A
D
320
300
316 317
324
323
314
324
315
308
308
295
293
294
280
260
240
220
200
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
YEARS
Source: Cattle-Fax 2007 Survey
Costs do not include depreciation, opportunity costs, or returns to management
2006 Regional Cow Costs
Cash + NonRegion
Cash
cash
Northwest
$399
$476
Southwest
$380
$453
Midwest
$366
$483
South Plains
$359
$430
Southeast
$328
$425
U.S.
$366
$453
Cash costs exclude depreciation, opportunity costs and returns to management
HIGH- RETURN vs. LOW-RETURN PRODUCERS
Calf Breakeven
Grazing & Feed Cost
Annual Cow Cost
HIGH
LOW
$75
$139
$343
$148
$216
$595
Difference $252 Per Cow
Source: Texas A&M, Southwest Cow-Calf SPA 1991-2005
HIGH- RETURN vs. LOW-RETURN PRODUCERS
Weaning Percent
Avg Weaning Wt.
HIGH
85%
539 lbs
LOW
80%
502 lbs
Lbs Weaned per
Exposed Cow
458 lbs
403 lbs
Net Return Per Cow
$141
-$250
Cow/Calf Returns
250
High Return
200
Producer
150
$
/ 100
H
50
E
0
A
D
-50
Low Return
Producer
-100
-150
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
Source: Cattle-Fax
YEARS
2008 projected
145
Cattle-Fax 500 lb Calf Price
135
125
$ 115
/ 105
C
95
W
T 85
75
65
55
45
80 82 84 86 88 90 92 94 96 98 00 02 04 06
MONTHS
Cow-Calf Returns
200
175
150
125
$/head
100
75
50
25
0
-25
-50
-75
-100
YEARS
14.00
Feeder Cattle Cash Basis - 550 lb. Steer
Central Region vs. Southeast Region
12.00
11.22
$/cwt
10.00
8.00
6.00
7.11
7.17
1990's
2000-2006
4.77
4.00
2.00
0.00
1980's
Source: Cattle-Fax Weekly Feeder Cattle Prices
CE: CO, KS, MO, NE, OK, TX
SE: AL, AR, FL, GA, LA/MS, KY/TN
2007 YTD
Does Pre-Conditioning Pay?
During 2005-2006, weaned
pre-conditioned calves brought
$5-$8/cwt ($35-$40/hd)
premium to bawlers!
+
Natural Programs+$3-$7/cwt
Premium Programs
+ Source & Age Verified+$10-$25/hd
+ Pre-Conditioned Weaned/Healthy+$4-$8/cwt
+
Performance History (Feedlot/Carcass)+$2-$5/cwt
Average Cattle = Average Price
Under Managed Cattle
Role of Stocker Operator
 Inventory shock absorber
Add low cost of gain
Warehouse cattle
 Add value and improve quality
100
Stocker Cattle Profit (Loss)*
Winter Grazing Program
75
$
/
H
E
A
D
50
25
0
-25
Average profit = $30.61
-50
80 82 84 86 88 90 92 94 96 98 00 02 04 06
*Purchased Oct. - Nov. at 500 lbs.
Marketed Feb. - Mar. at 750 lbs
Source: Cattle-Fax
180
160
140
120
100
$ 80
/
60
H
40
E
A 20
0
D
-20
-40
-60
-80
-100
Stocker Cattle Profit (Loss)
Summer Grazing Program
1980-2002 $12.50/hd.
80 82 84 86 88 90 92 94 96 98 00 02 04 06
Purchased Feb-Mar at 500 lbs. YEARS
Marketed Sep-Oct at 750 lbs.
Source: Cattle-Fax
175
Fed Cattle Profit (Loss)
150
125
$
/
H
E
A
D
100
75
50
25
0
-25
-50
-75
-100
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
Source: Cattle-Fax
2008 projected
YEARS
Where’s the Profit
Avg. fed cattle price 1981-2006
Avg. fed cattle breakeven 1981-2006
$70.78
$70.06
In the long run, commodity business offer profit
opportunities only to those that have lower than
average costs of production, superior performance,
or better than average returns.
2008 Outlook
• Cattle inventory growth stalled: Growth to remain slow
• Beef production cycle continues: 2008 production up nearly 2%
• Beef exports to grow during 2008-2009: Long-Term growth potential with access
• Cattle and beef price to remain strong: Long-Term trend remains higher
• More growth in outside capital invested in markets: “Commodity Funds”
• Corn prices to remain elevated for several more years: “Fight for Food or Fuel”
• Acreage battle in 2008 will be fierce: Corn stocks to use ratio to shrink
• Weak dollar will continue to stimulate commodity exports
• Industry consolidation will accelerate especially in the feeding industry
• Packer market share battle: “One for the ages”
• Beef branding and market differentiation will continue: “Opportunity”
• The business environment is changing rapidly: Stay tuned!
“Keep an Open-Mind in these Changing Times”
Thank You for Attending