Alternative Systems to Offer Respite From Grain Market Volatility

The Outlook for the American feed lot industry is bearish with demand limiting fed prices and uncertainties over grain supply hugely affecting market confidence.

But developing consumer appetite for alternatively produced beef, whether pasture reared or organically fed, could offer premium prices to struggling cattlemen whilst reducing linkage between farm gross margins and the flux of the grain markets.

According to a USDA report, feeding cattle grain is the cheapest method of production but changes are afoot. 

Alternative beef rearing systems currently account for three per cent of the market. This, the USDA predict, will increase 20 per cent annually, potentially doubling over the next five years.

Reasons for the predicted shift away from grain-fed beef are changing fashions and consumer tastes. Different varieties have their own marketing attributes such as finish, land usage or labelling considerations such as ‘natural’ or ‘certified organic’.

Complex arguments over sustainability can arise from benchmarking different production systems against each other. Greenhouse Gas emissions and cropping land usage are some of the hot topics discussed in the report.

While much of the pros and cons depend on individual consideration, the USDA clearly state that well-marbled meat results from cattle being fed grain. Grass fed beef has a whiter fat and a stronger flavour with carcasses being leaner overall.

While changes in demand patterns are occurring, there are also considerable changes to the feedlot herd as cattlemen try and recover from the 2012 drought. Heifer numbers for example have seen a pronounced decrease this year.

Last month’s cattle on feed report posted the lowest heifer share (35.5 per cent) for any April since 2006. This is testament to the herd rebuilding process, which has resulted in a 7.6 per cent drop in heifer placements on figures from April 2012.

However, analysts are suggesting that lower heifer placements are not resulting in foregone profit. For 2013 the average five area weekly average for fed steers has come in at a ‘disappointing’ $125.87.

Weather concerns are sparking corn price debates and this, analysts say, is causing concern in the feeder markets.

John Anderson, Deputy Chief Economist at the American Farm Bureau Federation said this is causing increasing pessimism in the fed cattle industry with last week’s futures not seeing a 2013 contract above $127 to start the week.