LINCOLN — Cattle feeding, the leading generator of income in Nebraska’s agricultural sector, appears poised for a rebound after losing more than $1 billion during the past two years.
“I think the good news is that 2014 is going to be a redeeming year at long last,” said market analyst John Harrington of Hastings. “It’s like coming out of the desert and finally finding an oasis. And we’re going to be making some pretty good money in 2014.”
Much of Harrington’s optimism comes from the onset of harvest, a return to normal corn production and a decline of almost 50 percent in corn prices since they reached $8 per bushel during the 2012 drought.
Buck Wehrbein of the Mead Cattle Co. is among the many beef producers eagerly awaiting 2013 harvest results.
“The fact that we can buy corn now in the fours instead of the eights certainly will help,” Wehrbein said of the dollar cost per bushel.
On the other hand, it won’t help for Wehrbein and his peers to look back at the dark alley where they got mugged by a combination of high feed costs and the high cost of replacement animals.
Even before the drought reduced the corn supply, exports and conversion of corn to ethanol helped push corn prices from $3.22 per bushel in October 2009 to almost $6 a bushel in October 2011.
Cattle numbers also were in a long-term decline before the drought shriveled pastures and caused 2012 herd liquidations from Texas north into Nebraska and South Dakota.
Jeff Stolle of the Nebraska Cattlemen cited both the pre-drought price of corn and feedlot calves.
“You can’t make much progress in backing up your original cost (of calves) when you’re using $6.50 to $7 corn and it’s costing you $1 to $1.20 per pound to put on gain,” Stolle said.
Because of the surge in the corn supply in the next few weeks, he sees the cost of grain declining to 80 to 85 cents per pound, “and the feedlots are going to fill back up.”
The Cornhusker Economics website maintained by agricultural economists at the University of Nebraska-Lincoln shows a gain in the value of beef animals heading for packing plants from $81.52 per hundredweight in 2009 to $126 at the end of September.
But as Wehrbein and others on the front lines of beef production know all too well, the cost of replacement calves and corn rose much faster.
“The production costs got way high,” he said, “and then we were unable to get enough for our finished product, for our cattle, to make up for that.”
Among the consequences at many feedlots is that cattle numbers are well short of capacity.
“We’re at about 62 percent,” Wehrbein said of his Mead operation, “which is probably down by about 20 percentage points” from normal for the start of the autumn feeding cycle.
“The traditional move into feedlots of cattle off grass is happening right now,” he said.
Reduced cattle numbers are especially prevalent in feedlots where managers cut their risk of doing business by feeding cattle owned by others, a practice commonly called custom feeding.
“I think a great irony of this business,” Harrington said, “is that when the market is good is exactly when you want to own them yourself, and that’s when you can find all the customers.
“And when you don’t want to own them, you can’t find a customer.”
Boxed beef prices, one indicator of what consumers pay at stores, have risen from $137.25 per hundredweight in 2009 to $193.43 this fall, according to Cornhusker Economics reports.
But a rebound for the cattle industry probably means ranchers will be retaining heifers to rebuild their herds, rather than selling them to feedlots.
So “feedlots will have even fewer cattle in the short term,” Harrington said. “This industry takes so long to turn around. Heck, it’ll be 2016 before we get more meat out here.”
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