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2012 livestock outlook

Profits in cattle, swine operations look good

April 22, 2012
By LINDSEY MUTCHLER, For The Messenger , Messenger News

Futures markets indicate a profitable year for most swine and cattle producers this year, according to market analysts.

Cattle

Record high calf prices are "lining up to make this a fantastic year" for cow/calf operations, said Shane Ellis, an Iowa State University ag economist.

Article Photos

-Messenger file photo
This ancient breed of cattle is called British white in a feedlot east of Polk City. Analysts said all cattle producers stand to earn profits during 2012, especially during the first six months.

"Of course the calves are just barely starting to be born that will be sold this fall," Ellis said, "A lot could change, but if everything holds together there's a potentiaal to make $150 profit per calf sold."

Kevin Good, a senior market analyst with Cattlefax, said he saw the same trend of a good year for cow/calf operators. He added there's a possibility for mild expansion, as well.

While the high prices are good for the cow/calf segment, they're squeezing the profit margins for end producers, such as feedlot operators and packers.

Good said feedlot operations should expect marginal profits with high input costs and historically high grain.

"Even if suggested cattle prices trend higher than average this year, the profitability of these (feedlots) operations will be marginal," Good said.

Ellis said he thinks the first half of the year will be good for feedlot operators.

"The feedlot sector should make some good money now through May or first part of June," Ellis said. "After that, into the summer season, there's not a lot of promises.

"Future prices are a pretty tight equation because feeder calf prices are so high, and a short supply is really closing the profit margin in the cattle finishing sector.

"Overall, I think it'll be a profitable year for feedlots."

Those livestock producers in the stocker business will be profitable, but less so than in the past, Good said, due to record high calf prices and high land/lease rates.

While profitability looks generally bright in the industry, there are challenges ahead for producers, such as high input costs and more price volatility.

So, what can feedlot and stock producers do to improve their chances of turning a profit in 2012?

Good recommends for those in marginal business feedlots and stocker background recognize the greater need for risk management.

"Be more willing and open to use risk management to protect your equity," Good said.

Ellis recommends operators watch the timing of their forward pricing.

"I think revenue is the No. 1 thing to protect this year," Ellis said. "There is instability with some things in economy, including fuel prices."

Swine

Overall swine operation profitability is trending toward "reasonable" in 2012, according to Steve Meyer, president of Paragon Economics, in Adel.

"Look at future markets and the average for the year so far is as low as $4 or as high as $18," Meyer said. "I think we're looking at a reasonable year of profits for pork producers."

Ellis said the market is projected to become more bearish in the fourth quarter of 2012 as more hogs enter the market.

"There's some concern over whether packers have the capacity to handle another record supply of hogs in the fourth quarter," Ellis said.

The industry experienced steady two percent growth in past years, with three straight years of profitability.

Meyer cautioned producers not to get carried away with expansion.

"Slaughter capacity will be tight this fall and will be very tight in 2013," Meyer said. "You can't build slaughter houses as quickly as you can put sows into operations."

Despite controlled growth and three straight years of profits, swine producers do face challenges in 2012, such as porcine reproductive and respiratory syndrome, or PRRS, and potential for high grain costs.

Meyer also said it will be difficult for producers to match last year's export performance.

"Matching that won't be a cut and dry deal," Meyer said, "but we can get there."

To manage challenges, Meyer suggests producers pay attention to the gross margin value above cost of corn/soybean meal, and lock in at least a portion of their sales.

"There's still a lot of risk out there," he said. "That's one thing they can do."

Contact Lindsey Mutchler at (515) 573-2141 or lmutchler25@gmail.com.

 
 

 

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