High times lead some to ponder the futureExperts predict stabilizing cattle numbers, shrinking commodity profit margins.
By: Chris Mueller, The Daily Republic
While South Dakota’s farmers and ranchers saw crop and livestock prices soar to record highs in 2011, looming concerns remain over what those high prices will mean for the coming year.
Because of higher demand in the United States and growth in foreign markets, farmers and ranchers nationwide were able to sell their products for record prices in 2011.
In November, the U.S. Department of Agriculture forecast those higher crop and livestock prices would mean a 28 percent increase in national farm income for 2011 to a record $100.9 billion.
An expected increase of more than 16 percent in crop sales for 2011 would put that total at more than $200 billion, the highest ever total in U.S. history.
The USDA predicted a similar increase in livestock sales of more than 17 percent, with double-digit increases across all varieties, especially red meats.
“What normally sells for a lower price in these markets has been able to command a higher price,” said South Dakota State University Extension economics field specialist Jack Davis, describing a trend of increased demand for even traditionally less-desirable cuts of meat.
He added the key for 2012 will be whether this year’s economy can support the higher prices at the retail level and still bring the profits back to farmers.
“We’re at pretty historic levels, so it’s hard to predict how we’ll go forward,” Davis said.
The expense of producing crops and livestock is also on the rise.
The USDA forecast production costs to increase by about 12 percent, or $34 billion, reaching nearly $320 billion nationwide in 2011.
Increased expenses and severe drought in some regions of the U.S. may have spurred more farmers to sell off portions of their cattle herd.
“We’ve seen a dramatic decline in beef cattle in some areas in the last year,” said South Dakota Beef Industry Council Executive Director Ron Frederick. “We’re going to see a cow herd that is the lowest we’ve seen since the 1950s.”
Despite the declining size of beef cattle herds, he predicted demand for beef products will continue to rise.
The USDA projected the high cost of feed will lower the overall production of meat and poultry, raising livestock and meat prices in 2012.
“As the cow herd declines, we’re going to see meat prices increase,” Frederick said. “Our goal is to figure out a way to grow the cow herd.”
According to statistics from the South Dakota Beef Industry Council, the state is home to more than 15,000 beef producers and 3.7 million head of beef cattle — more than four head of cattle for every citizen in South Dakota.
The state ranks eighth in the nation in total number of cattle and calves.
While South Dakota experienced relatively stable weather in 2011 as far as the livestock industry was concerned, Frederick said several factors, such as the national economy, tight credit and federal regulations will determine the future of the local livestock industry.
“Barring not having a major drought, we should see our herd stabilize this year and small increases going forward,” he said.
But with so many variables to consider, Frederick made it clear there is still risk in the livestock industry.
“It’s pretty unstable right now, if you think about it,” he said.
Despite the unpredictability of the market, optimism for growth remains.
“Long-term growth will still be there,” Davis said. “That doesn’t mean it won’t be volatile, but there should be room for profits.”
Though optimistic, Davis is realistic about matching the record levels of last year in 2012.
He said profit margins for crop farmers will likely be less this year when compared to last because of increasing production costs.
“Over time, we can’t expect these high margins to continue in a commodity business,” he said. “We’ve had some very good years coming up to this.”