Current State of the US Cattle Industry and Future Challenges

Jesse Y Womack IIIGlobal Cattle and Beef Industry

Consultant

Snapshot of US Cattle Industry

• Total Cattle Inventory is 89 million head (Brazil’s is 190 million)

• 30 million total Beef Cows• US produces 25 billion pounds of beef

annually, equivalent to 20% of global production

• Exports are 10% of total production or 2.5 billion pounds equal to $5.1 billion

Current Values in Different Segments

• Cows, replacement heifer, and cow-calf pair prices trending higher

• Steer calf prices predicted to average $2 per pound for 400-500 pound steer in 2014

• Feeder steer prices at all time highs (spot contract $1.65 per pound)

• Fed cattle prices remain close to record highs (spot contract $1.32 per pound)

Cow-calf Segment

• Currently seeing some of the largest profit margins ever on a per head basis

• Calf prices projected to remain high for the near to medium term future

• Range conditions across most producing regions have improved

• Hay and feed costs have decreased

Stocker and Feeder Segments

• Stocker and feeder steer values at all time highs

• Feed costs have decreased• Positive feed yard close outs for the first time

in over one year• Feed yards managing to stay fairly current• High packer demand for fed cattle

Packer Segment

• High beef cut out values• Lower corn and feed costs• Exports remain strong• Offal and hide values helping margins• Increased consumer interest in offal and

alternative cuts (largely from urban and ethnic populations)

However… Challenges

• Weak domestic economic growth affects consumer beef demand

• Higher beef prices inflicting demand destruction

• Stalling developing economies• Pasture conditions still not great• Political uncertainty (farm bill, trade deals,

immigration reform etc.)

Challenges continued

• Greater public scrutiny on production methods (animal welfare, hormone and anti-biotic use)

• Higher input costs (diesel, labor, fertilizers)• Increased environmental regulations• Drastically increased capital costs (bred cows,

replacement heifers)• Feed Yard and Packer over-capacity• Lack of skilled labor, availability of unskilled labor,

competition from other higher paying industries (cattle and new oil producing areas often overlap)

Conclusions

• Most, if not all segments of the US cattle and beef industry are enjoying profitability right now.

• However, many major challenges face the industry now and in the future

• We will see major structural changes in the current US cattle/beef industry within the next 10 years

• One additional major challenge is the looming generational shift in many US cattle operations

Generational Shift Challenges

• Average age of US farmers/ranchers approaching 60 (in some states the average is already over 60)

• For every farmer/rancher under 25 there are 5 people over 75

• The number of farmers/ranchers over 65 has grown by 25% since 2002

• Increased capital costs, estate tax burdens, increased input costs, higher land values are all exacerbating this trend

Not All Bad News

• Increasing interest in food production, where food comes from, and how it is produced in younger populations

• Higher value and niche markets emerging• Many new technologies being developed in

agriculture and food production• Being recognized as an industry for entrepreneurs

and innovators (similar to the oil and gas industry) in order to attract younger talent

Possible Solutions

• Cattle and beef organizations need to increase programs and efforts to attract young people

• Different segments of the industry need to increase cooperation and recognize that a healthy industry is better for all

• Producers and cattle organizations from different countries must increase exchanges and dialogue as well

• Brazilian cattle producers can learn from our mistakes

Producer Exchange Trips

Increasing Understanding and Building Relationships

Education Programs

Obrigado!

• Questions?