THE NEW MILLENNIUMCWILL IT BE PROFITABLE FOR CAROLINA CATTLE PRODUCERS?
P.J. Rathwell, Extension Ag. Economist 

Long-term price trends and the futures market for fed, feeder and stocker animals have all turned higher.  This comes after a five to six year down turn in cattle markets and producer profits.  The industry has been significantly weakened financially.  But, it is a new day!  Cow-calf producers in the Carolinas should be solidly profitable during the next few years.  Now is the time to capture market opportunities and build long-run profits.

 The cycle high in calf prices is not likely to occur before 2002 or 2003 thus cattle producers should stay profitable through this period.  This fact is fairly well assured given the supply and demand factors present in today=s market.  Average profits for the typical cow-calf producer were about $50 per head in 1999 (Figure 1).  This is over a $125 dollar per head improvement from the cycle low in 1996.  Profits for 2000 are projected to be near $62 per head for good managers.  Unless there is some unforeseen drastic change in these factors producers will have to really mess up not to participate in an improving market.  Now let=s talk about the future and see what new and better marketing strategies are available in the new millennium.

 

 

  The outlook for 500-pound medium frame No.1 calves for the fall is $95 per cwt.  Calf prices could improve above this level in the fall of 2000 if demand holds and feedlots stay current.  Higher corn prices could be a limiting factor to additional calf price movement since feedlot margins would be under more pressure.  On the other hand higher corn prices will force feedlot operators to keep cattle inventories current----a BIG problem in 1998 and 1999.

 Cow-calf producers should plan now to capture and maintain these anticipated profits.  Several points need to be considered in this plan.  First, since the weight of the calf is a major determinant in producer revenue it would be Apenny-wise and pound-foolish@ not to push calves to achieve their weight potential.  This is especially true with corn prices near record lows.

Managing cull cows will pay extra dividends.  Cull cows are a significant player in producer revenues.  Fleshy cows sell better than thin cows.  Slaughter cow prices will follow the market trend.  Lower fed cattle numbers will support cow prices.  It is possible to see cow prices in the high $40=s this year.

There is still time to buy reasonably priced replacement females.  If you are interested in expanding herd size now is the time.  Replacement females will likely increase $100 to $150 per head over the next two years.  The top of the bred-cow and market-calf cycle is not expected prior to 2002 to 2003.

Now is also the time to refine marketing objectives and evaluate new methods of selling your cattle.  The future is Avalue-based pricing.@  With technology processors will be able to do a better job of measuring true carcass value differences.  This technology will also produce wider discounts for calves that don=t meet consumer preferences and packer profitability standards? 

Producers need to consider becoming a part of an alliance or cooperative marketing venture during the next few years.  This is the likely way that the producer will be able to capture the real value of the calves he produces.  The future is not in  Aaverage prices@ or Aper head@ selling methods.  Grids and formula pricing options will allow producers to capture the Atrue value@ of their cattle.

 The new century will signal profits for Carolina cattle producers.  It will also signal the need to change the way producers are doing business.  Today there is excess feedlot capacity, which gives the cow-calf producer the Aedge@.  It is up to the producer to realize where profits can be made, plan for the future and capture what the market is going to be offering in the next century.