On Nov. 28, 2011 USDA’s Economic Research Service forecast U.S. 2011 net farm income at a record $100.9 billion, up 28 percent from 2010. Livestock sales were projected to rise by almost 17 percent, with double digit gains in red meats. So… cattle producers are doing better. But are they doing well?
“We’re doing better than we were a couple of years ago,” said American Farm Bureau Federation livestock economist John Anderson, one of the guest speakers at Arkansas Farm Bureau’s 77th annual convention in Little Rock, Ark. However, Anderson pointed out livestock production expenses also set records in 2011, telling Ozarks Farm & Neighbor, “We’re operating in a challenging environment where there’s a tremendous amount of risk.”
Those costs, particularly the price of grain, have driven the fully-integrated poultry sector into red ink. Leading processors have reported losses and others have declared bankruptcy like Cagle’s in Georgia, or been wholly or partially acquired like Arkansas-based companies OK Foods and Townsend Farms. Anderson said that presents a risk to integrator partners. “Any time a company changes hands or goes through a restructuring, there is a very serious worry about what’s going to happen to those contract growers because they are at risk in that transition,” he said. “There’s a lot of churn going on in that industry, and certainly that’s not a comfortable situation for growers to be in.”
The high cost of production has caused chicken processors to reduce egg sets, and Anderson does not see any expansion in the industry until late in 2012. “I think there are some encouraging signs in their end product market if you look at prices,” he said. “But I think they’re going to need to see a little more assurance before they get very interested in expansion, because they’ve been through a very tough couple of years.”
Anderson also sees no 2012 expansion in the beef sector and agrees with USDA’s projection of a 5 percent decrease in beef production, in part because females will be held off the market to replenish breeding herds. “That’s how you bring about expansion, but it takes a couple of years,” he said.
Further constraining expansion will be the forced liquidation that resulted from the record-setting drought in the Southern Plains. “A lot of cattle were displaced in the Southern Plains and on through New Mexico and Colorado,” said Anderson. “I’ve got questions myself about how many of those cattle are actually gone, and how many went to other places where there was pasture.” Anderson said some of those questions will be answered when USDA’s January cattle inventory report lays out the herds on a state-by-state basis.
