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Corn controls the discipline in the fed cattle sector, says Jim Sartewelle, a risk management program specialist with the Texas Extension Service. "When corn gets to $5 a bushel, you get pretty efficient at how you turn a calf into a fed steer in a very short period of time," he says. This year there was about a 15 percent carry over in the corn crop. In the 1980s, there was a 50 percent carry over, but the government's out of the business now. The economics for the corn farmer has changed and that will change the cattle business. "It's like the cow-calf thing," Sartewelle says. "We used to be able to expand six or seven percent a year, and bust five or six percent a year and just roll tide right through it. It's not going to take drastic changes in stock-to-use ratios to move prices pretty good." There are projections of corn selling this market year at two dollars a bushel. "Bad news for corn farmers," Sartewelle says. "Great news for cattlemen." If the 1999 corn crop is as big as projected and prices hold under $2.50, there could be a big profit potential for feeding cattle. "The best thing about cattle feeding is it doesn't take a rocket scientist to figure out one output from two inputs," Sartewelle says. "It takes feed and a calf to produce a fed animal." With a smaller calf crop, with lower feed grain prices and exports ripe for expansion, the future may not look so bleak. "It's just time for things to get better," Sartewelle says. However, the cattle market is changing, he says. Traditionally, cattlemen could stay in the cattle business 12 years and go from peak to peak and from trough to trough, but with production changes and enhancements, Sartewelle says he doesn't think the industry will continue on the old nine to 12 year cycles. Producers historically would liquidate for three or four years, then there would be a five or six year gentle expansion of the herd. There would be three or four years of profitability. There would be any where from a five to eight, sometimes as much as a 15 to 20 million, head difference between the peaks and the valleys of the price charts. "We certainly saw that in the mid to early 1970s," he says. "We had 132 million head of cattle in 1975 and 1976." Every time the herd has peaked since, it has been 12 or 13 million head less. While the numbers have dropped, the weights have gone up. "We've taken weaning weights," he says, "and added a 150 pounds to every one of these little suckers that's born." He says the industry has made many productive advantages over not having as many cows around. "We produced in 1998 the same number of pounds of beef off of 99.7 million head of cattle that were produced off of a 132 million head of cattle in 1975," Sartewelle says. In the future, cycles are going to be shorter and peaks and troughs are going to be narrower, Sartewelle says. The January first inventory this year was 98.5 million head of all cattle and calves, down about one percent from the year before. It was down about three percent from 1997. Predictions in the Mid-West were that cow-calf producers were going to expand in 1998 and short-circuit any chance for good times. But it got dry across south Texas, Sartewelle says. "We continued to do what Texas has done for the last three years," he says. "We led the nation in cow herd liquidation." As an example of how times have changed, Sartewelle points out that the industry is talking about a three percent decrease over two years being a huge change. "You go back to the 1960s and 1970s, when we were expanding that herd by three to six percent a year, three years in a row," he says. "You will not see that anymore." In the future, Sartewelle says, small changes in production, in the corn crop, in expansion or contraction of the nation's herd, will set off larger moves in the market. |
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