Globalization key in 2008

Dec 24, 2007 12:27 PM

Source: Angus Productions Inc.

Well-known Cattle Fax executive vice president Randy Blach is keeping his eye on the big picture in the year ahead. He says, “Globalization is here, and we [the U.S. cattle industry] need to figure out how to participate.”

Making his comments at the Range Beef Cow conference held mid-December in Colorado, Blach suggests that if all segments of America’s beef sector can embrace the globalization of the marketplace, there would be more opportunity in the cattle industry than ever before.

“This is a tremendous opportunity for beef producers, but we have to have access to these international markets. It is a much different ballgame with globalization and higher corn prices, and not the same business that we grew up with.”

Blach notes that beef production is growing worldwide, but Brazil, China, Argentina and Uruguay are seeing the lion’s share of the growth. That growth needs to warrant the U.S. beef industry’s attention.

“We need to understand what it takes to be part of that market and to be a viable industry in the future. We need to export more of our beef production,” Blach says. To do so, he says America’s cattle industry must get back the markets we lost in 2003 (Korea and Japan) and add China.

Blach believes those export markets would add $85 per head to what American producers receive today.

At present, Blach says the weak U.S. dollar should make American beef more attractive overseas. “As the dollar weakens…there is more international buying power from places with more wealth like in China and India,” he explains.

Ethanol’s Impact
In addition to globalization, Blach says another trend he is observing is the fact that herd expansion is not occurring within the U.S. – despite profitability within the cow-calf sector for the last decade.

He attributes this to record-high feed prices. “Cow-calf costs are up 20% over the last three years. It is going to cost more to produce calves every year, and I see no change in that on the horizon.

Much of that increased cost can be traced to high corn prices due to competition for corn from the ethanol industry. Of that, Andy Gottschalk, a commodity broker and owner of hedgersedge.com, says “In its current state ethanol is not a friend to the cattle industry.”

He says, “The sector of our industry most susceptible to the adverse impact of a sharp increase in corn prices is the cow-calf sector. Higher corn or feedgrain prices will ultimately limit the price the fed sector will pay for calves and feeders. Each 10¢ advance in corn prices will reduce the value of a calf or feeder $4-5/head.”

While the good news side of the ethanol industry is the large amounts of distiller’s grains that are available for cattle rations, Gottschalk and Blach say cattlemen will still need to be watchful of prices for corn and other feedstuffs and calculate strategies for surviving those increased costs. The ethanol and biodiesel industries are here to stay as new bills in Congress are placing more emphasis on use of renewable fuels. The prediction is to increase to 36 billion gals./year in 2022.

Price Predictions
What can be expected regarding the cattle price cycle? Cattle-Fax’s Randy Blach reports that growth within the U.S. cowherd has been limited by drought, higher land values, growing ethanol production, alternative land uses, urban sprawl and more.

However, Blach acknowledges that even with a stable herd size, US beef production is rising to meet demand, as we are producing more beef from fewer cows with carcass weights going up 15-20 pounds.

Looking ahead at the next 12 months, Blach predicts fed prices may average in the $92-94 range, calves in the $117-120 range, and feeders at $105-106.

But, he indicates producers in the West and Southeast will have to be more efficient to stay competitive with the Central U.S.

Editor’s Note: This article is based on comments made by speakers at the Range Beef Cow Symposium held in Fort Collins, CO, Dec. 11-13. To review more comments by speakers at the event and covered by Angus Productions Inc. visit http:// www.rangebeefcow.com.

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