Beef output has been up recently, and prices weaker, Bloomberg is reporting this week. But, there’s a big difference between at least some of the press reports that have come out this week and those that typically cover ag markets. Bloomberg seems to be saying that the market situation is largely the industry’s own fault.”
That’s a pretty tough call for the industry but Bloomberg reports evidence from the industry itself, including from cattlemen themselves. For example, “the current industry-wide buildup has been the fastest seen in at least 30 years, Shelby Horn, a fourth-generation cattleman with a family ranch in Nebraska told Bloomberg.
The result, Bloomberg says, is an “explosion of beef on the market and a 30% drop in wholesale prices from a record set in May 2015, when supplies were tight after the drought. And with many of the calves still a year or two from slaughter, the industry finds itself with no quick or easy way to adjust.
Even worse, it could mean beef prices will keep falling through 2019, John Nalivka, the president of Sterling Marketing Inc., an industry consulting firm, told Bloomberg.
In fact, the impacts of the industry output surge are widespread. “Most cow-calf guys, they’ll be in shock by the time they get their fall calves sold” because of the steep plunge in prices, Shawn Walter, owner of Professional Cattle Consultants in Weatherford, Oklahoma, told Bloomberg. “That’s going to chill most people’s expansion plans.”
Beef production will rise 5.2% this year and climb a further 3.4% in 2017 to a five-year high, Bloomberg says, citing USDA data. Output is increasing as the cattle, hog and chicken industries expand simultaneously, leaving the nation set for a year of record meat production and declining prices. Consecutive years of bumper grain harvests have also sparked expansion and cut feed costs.
In addition, the industry tends to adjustment only fairly slowly. “The cattle business is a years-long cycle,” Jeff George, manager and owner at Finney County Feedyard near Garden City, Kansas, told Bloomberg. Still, he notes that the impact of the latest expansion “snuck up on a lot of us,” he said.
Beef supplies could keep climbing even as ranchers start to pull back their herds, cattlemen say. That’s because while farmers sell some of their heifers for beef, and that eventually means fewer calves and a smaller herd, but “it just creates more meat in the meantime.”
To illustrate, Bloomberg follows a case from Rancher Horn. As pasture conditions improved in 2014, he ran more animals on his Nebraska ranch — as many as 700 from as lows as 550 in 2009. When the drought ended, calves were still selling for as much as $1,600 a head, Horn says, but now they are bringing as little $600, adding that his family is considering cutting cattle numbers to 600.
Larger numbers of slaughter numbers are a benefit to processors who not only pay less for livestock but spread the costs of running their plants across more animals. Larger beef production also is good for restaurants and grocery stores, where prices are beginning to fall, Bloomberg says. Retail ground-beef has dropped in eight of the past nine months and is down 14% from a record reached in February 2015.
The process of herd adjustments take time because cattle can be almost two years old when they are slaughtered. The supply chain that starts with ranchers and farmers, then “stocker operators” who then add a couple hundred more pounds and the feedlots that bulk them up to 1,400 pounds for slaughter.
Still, the steps being planned now to cut back herds will slowly work their way through the system and eventually reduce the current supply flood. The U.S. herd is expected to expand by only about 0.5% in 2017, said Derrell Peel, a professor of agribusiness at Oklahoma State University in Stillwater, down from his previous forecast for a 1.5% increase.
Across the industry, the current volatility in cattle futures is making producers increasingly wary of keeping their herds as large as they are, said Horn, the cattleman. He thinks the earlier expansion has been killed, he said. “The volatility and lower prices were a nail in the coffin.”
There’s another aspect to the “cattle cycle” and that’s the industry’s aversion to suggestions that the government should intervene much beyond a few additional purchases for feeding programs even when changes are dramatic. Observers are not usually as blunt as Bloomberg was in its “own worst enemy” characterization, but the industry has long registered a preference for “going it alone” and seems to understand clearly the need to pull back when weak prices signal the need to do so —and, to have difficulty understanding the increases in plantings by crop producers this year in the face of weak markets.
Well, nobody ever said ag markets and production planning are simple, but the thoughtful and well informed seem to make them work. It’s a proud industry with a proud history, and may have done better in times when the government presence is smaller than otherwise. Also, it is interesting when the press focuses closely on what’s actually going on and why rather than its occasional visions, in terms of either diets or management from the food elites, Washington Insider believes.