Farm Talk

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February 21, 2013

Big “ifs” for 2013 beef profitability prospects

Parsons, Kansas — Profitability prospects for beef producers in 2013 will be impacted by some mighty big “ifs” looming large just over the horizon.

Speaking to farmers and ranchers in Iola, Kan., last week, Kansas State University Economist Glynn Tonsor said demand and drought recovery are two of the most important unknowns that will affect profitability.

On the supply-side, however, the numbers are clear. The January USDA cattle inventory report reaffirmed what the industry already knew. At 89.3 million head, the total number of cattle in the U.S. is at its lowest point since 1952 with the number of cows and heifers calving last year the fewest since 1941.

Although contemporary cows are far more efficient at producing beef these days, extremely tight beef supplies remain a certainty supporting the market.

What is far less certain, Tonsor said, is the level of demand strength and the degree of drought recovery. He expects low supply to drive meat prices still higher with the potential for record highs in 2013 and 2014.

Public acceptance of those prices, though, is one of the “ifs” that will affect prices beef producers receive going forward.

“The good news is, in 2012, the public did pay a high enough price to lead to an aggregate beef demand increase,” Tonsor said. “Most people didn’t think that would happen.”

He cautioned, however, that as the public pays higher prices for beef, cattlemen should expect increased scrutiny regarding how it is produced.

Tonsor said it’s important to differentiate between demand and consumption. Demand, he noted, is strictly a volume calculation that indicates availability while demand concerns the public’s perceived value of the product — what consumers are willing to pay.

While demand was up in 2012, per capita consumption was down slightly from the previous year and is expected to drop 4-5 percent in 2013 and again by the same amount in 2014 as availability continues to drop.

“It’s almost a mathematical certainty that we’re going to pull down per capita consumption,” Tonsor explained, “What isn’t known is what the public will pay for that smaller amount of beef that’s available.”

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