Cattle profits up, way up

[haypoint]

I do not export my cattle and no one I know exports cattle, but because someone exports cattle, prices have never been better. I'm glad for the export market. It helps me and all the rest of the cattle farmers.


Montana cattle producers profiting from exporting

By Tom Lutey

The Billings Gazette

March 6, 2012





BILLINGS, Mont. (AP) -- His fellow Americans eat a billion fewer pounds of beef a year than they did at the start of the Great Recession, but Shawmut cowboy Jim Taber isn't rattled.



Cattle prices have never been higher. Ranchers are eyeing business expansion, while their Main Street counterparts struggle. The reason for Taber's optimism? Exports.



"If everyone in China ate a hamburger a day, we'd be in good shape" is Taber's mantra.



U.S. beef sales to foreign countries with strong economic growth has kept Montana's largest economic sector strong for the last seven years, with gross annual income from cattle sales surpassing $1 billion mark five times.

















Cattle prices have been at record highs since 2010 and show little sign of letting up. The only meaningful growth in the industry has come from exports, valued at $5.4 billion a year in 2011, a 33 percent increase from 2010, according to the U.S. Meat Export Federation.



The number of beef cattle in the United States is at a 60-year low.



Exports now make up 14 percent of U.S. production, enough to drive up prices even as recession-strapped Americans turn to cheaper protein sources like chicken and pork.

[linn]

I am not so optimistic about prices staying high. A buyer for the packing houses told DH that the packing houses were losing money because they had contracted to furnish beef at a certain price and now the prices they are now paying have risen sharply. When the packers are losing money look out.

http://www.capitalpress.com/content/...margins-shrink

[CIW]

Prices are up profits aren't.
Was speaking to my brother in Nebraska last week. His banker called and wanted to speak about increasing the siz of his operation.
My brother mentioned that along with the high cattle prices there is a even higher input ratio. So in reality net profits are down at any stage in the process of bringing a calf to finish.
Many producers in turn are going to the bankers to increase the size of thier operations. This spreads overhead, putting less finanicial demend on a given animal. It's ok as long as prices maintain or raise.
The problems come in when the prices start to decline and the debt isn't payed off. The input costs are still there, at the levels established when the debt was incurred.
Initial buy in of a heifer is well over $1100. Fuel is up. Machinery costs are sky high. The price of a bull is well over $4000. And he still only covers 25 head of cows.
Land is being heavily converted from grazing to crop ground due to the increase in grain prices. If you try to raise your own animals your return is outside the time curve. This in turn raises the input cost on an existing cow/calf pair.
I see the smart thing to do is to maintain existing growth patterns and let the markets stabilize after the presidential election. 3% annually is common. Then look at increasing growth. Again without incurring large debt.
Side note. The banker said that he could probably get a new pickup. My brother asked if that would help the cows produce better.

[Gabriel]

Originally Posted by CIW

Prices are up profits aren't.

That depends on the producer. Those who manage for low inputs are doing very well. Small framed, grass fed... my neighbor thinks I'm crazy but never stops complaining about his lack of profit.

[haypoint]

It's never about how much you make, it's about how much you keep.

[MO_cows]

The low price cycle recently made a lot of producers lower/minimize their inputs and therefore costs. So there are likely quite a few that are really cashing in on this market, and good for them.

[oregon woodsmok]

Now is the time that ranchers start saving every female they can get their hands on. Traditionally, when those heifers come into production, the price crashes.

So right now is the time to sell everything you can produce while the price is high. Build your herd size after the price crashes.

[blessingsfarm]

As I understand it many farms in drought area have been forced to sell out, leaving fewer animals on the market. It seems like that would keep prices up for a year or two at least. Those animals can't be replaced in one year and drought doesn't show any sign of letting up at this point.

[bruce2288]

Oregonwoodsmoke got it right, but let me tell you a funny thing. Bankers will be much more inclined to loan money to buy cows when they are high than when they are low. It seems they think the prices they see that day are the way it will always be. Totally backwards.
Exports are totally driving the market,especially loin cuts.
Packer margins are little misleading. I have seen times when they are supposedly operating in the red most of the year, but the annual company profits are huge. I believe the packer margin is based on selling the meat, the bi product(hide, bloodmeal, bone meal ect)profits are not considered.
The amount of pastureland converted to cropground in my area is substantial. I hate to see it but it make economic sense at least in the short term. Here pasture will rent from $40-$60 acre, dryland cropground $100-$150 acre. As with many things money is the driving factor.