Beef industry faces a supply crisis

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The beef industry is facing a supply crisis as liquidation of our nation’s cow herd has now reached a critical stage. American ranchers have been forced to cull their herds to the point that it will have implications for years to come and may speed consolidation throughout every industry sector.

The U.S. Department of Agriculture’s mid-year cattle inventory report put the total U.S. herd at a record-low 99.96 million cattle and calves, down 1.4 percent from 2010 and the lowest mid-year inventory since 1973 when the government first started compiling a July 1 figure. The report also pegged the number of all cows and heifers that have calved at 40.6 million, down about 1 percent from last year. The report estimates the 2011 calf crop at 35.5 million head, down 1 percent from 2010.

The mid-year report confirms what we knew about cattle numbers from the January 1 report but raises the red-flag even further. After the January numbers were released, analysts noted the cow herd was the lowest since 1958. The January report estimated that there are 5 percent fewer cattle in the United States than in 2000 and 11 percent fewer than just 15 years ago.

While we’re reducing our cow herd, cattlemen have been increasing the number of cattle on feed and we’re producing more pounds of beef. In other words, we’re in a transition phase — we’re sending cattle into the supply chain at the same time we’re closing the factory. That’s not a sustainable situation.

Cattle numbers have been declining for about five years, and the causes of our industry’s liquidation crisis are not a mystery. Oil prices skyrocketed in 2008, driving corn and other feed grain prices dramatically higher. The world-wide recession that began that same year also played a large role in limiting beef demand and forcing cattlemen to shift into survival mode.

Slowly, it appeared we were on our way to recovery. Then the drought hit. And not just your garden variety drought but a massive, wide-spread record-breaking drought. Ranchers throughout the Southwest have been in a forced-liquidation phase for much of 2011, and there is no end in sight.

The cattle inventory is critical because our industry already operates under the pressure of excess capacity. Nationally, feedyards are at about 68 percent of capacity. In other words, at least 30 percent of the pen space remains idle. Packing companies also have excess capacity, and they have closed plants and shortened processing hours in recent years as a result of that over-capacity.

Smaller inventories will support prices for all cattle and calves in the short-term. Industry analysts believe beef demand remains strong, even as our nation’s economy struggles to recover. Yet, the dwindling inventory can have significant long-term repercussions.

The declining supply of feeder cattle causes ripple effects down the chain that go beyond just filling feedlot pens and packer shackle space. Short supplies create an impact on retailers, too, and may ultimately affect consumer buying habits.

Last year, America’s per-capita beef consumption was 59.7 pounds. That’s the lowest since we began keeping track in the 1950s. Per-capita consumption is not a measure of beef demand but rather a measure of supply, since we consume everything that is produced. The measure of demand is the price we pay for those 59.7 pounds of beef.

But tighter supplies and higher prices can’t continue indefinitely. At some point, analysts agree, we may price beef out of the domestic market.

Beef production during June was 2 percent above 2010, and commercial red meat production through the first six months of 2011 was 1 percent higher than last year. Analysts believe beef production will continue at or above last year in the near-term as we keep pushing cattle into feedyards as a result of the drought.

But at some point beef production will decline — maybe dramatically. And that decline will further lower per-capita consumption and drive consumers toward alternative protein sources like pork and poultry.

As that scenario plays out it will become evident that this year’s unprecedented drought will affect our industry for years to come.

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Tom Jones    
2 wingate drive, Little Rock, AR 72205  |  July, 29, 2011 at 10:47 AM

I started in cattle business in 1980(the other big drought year). I bought cattle when they were low and I have sold cattle when they are high(basic economics). I raise registered Black Angus in Western Arkansas, Clarksville area. I started feeding hay 7-27-2011, with limiting supplement on the side. The best thing I have going is autmatic waterers from deep well(cold water). It is amazing what a cow will consume and survive if the have a belly full of good cold water. We need to watch really close on the habits of our cattle, not what we think, and I believe we will get through this. We have been making money selling our culls that we needed to move in the last eighteen months. Pray for a hurricane to hit in east Texas, and then western Arkansas, center of cow/calf production, will make it through. The key is do more on less acres.

Gary Giesen    
texas  |  July, 31, 2011 at 07:18 AM

i am in agreement with almost everything mr jones has said except the do more with less acres. i have been practicing grazing the way my grandfather did in his lifetime. he always told me , son, if you will stock grass like every year is a drought you will make it when the drought comes. well, thats what we have done eversince. we have yet to put any hay out or haul water . what i am getting at is ranchers have taken advantage of the wet years to long and over stocked. depending on the place and grass our cattle ratio is one unit for every 12 to 18 acres. i am not bragin , just thankfull i listened. a fast prayer, father bring us all together and help us help our neighbor so we can all get through these trying times and if it is in your will bring the rains lord. amen.....god bless all of you out there !!!

John E Jensen    
Knoxville, IA  |  July, 29, 2011 at 11:03 AM

I am in general agreement with your comments. Particularly concerning to me is your comment about pricing our beef out of the market. It does appear we are still meeting the consuming public's needs. But my concern is with using per-capita consumption as a definitive measure of supply. Assuming that our production is staying even, with an increasing population the consumption per capita would go down. Is there a way to measure this in pounds consumed today against a population constant?

Charlie Andrews    
Chicago-Kansas  |  July, 29, 2011 at 12:46 PM

Very insightful report. I predict numbers will never come back at any price to spark restocking. In the Southeast which ihas been and is the "cow-basket" land is being converted to other uses than pastures. Simply the average cow herd has been in the 30 head area for any of our life time with many operations running from 5-15 head all names such as bessie etc. The amazing flow from all these small entities circling into the harvest of about 10 major feeder/packer entities is quite an efficient feat. I predict that many of the small enterprises will gravitate to sheep & goats. A very sad thought for an "old cowboy".

NY  |  July, 29, 2011 at 01:12 PM

The packers have nobody to blame but themselves. Their years of relentless predator pricing have driven all the 100-200 cow producers like myself out of business. As much as I liked raising cattle, endless supplies of $20/ton hay available the packers always made sure to bleed me out every year. Even today a bushel of corn can produce $11 worth of ethanol and $3.00 worth of beef. They'll never learn, just too ---- greedy.

Tank Ranch by Greg Tank    
McKenzie County, ND  |  July, 30, 2011 at 09:40 AM

I've raised cattle starting in the 60's with my first cow and our ranch varied in numbers from 100 to 500 head thought the years. This misconception of our nations cow number being up or down is a number producer should not be so concurned about but if their situation warrants a change in numbers to be more profitable and efficient. To lay out a spreadsheet of your operations activities and plans will help so you can change or adjust your activities to be more profitable as you proceed with you operation in the future is a must. To try to gease what the future is or to rely on someone elses gease or estimate of what the future is, is not very wise, especially if that demand is driving by dollars of profit in someone elses pockets. Be your own bose make wise decision that will benefit your our operation. If the media says something thats good to know but do your own thing and don't be swayed by market projections and rumors. As you can see the decease in numbers hasn't increased the cow/calf price at sales times.

Evan Rayl    
Bridgewater, Iowa  |  July, 30, 2011 at 11:46 AM

As profits to each segment of the beef industry now stand, the cow-calf producer, cattle feeder, and the packer all make very little profit compared to the retailer. The retailer would consider quitting too, if he had to fix a water gap in the timber on a recent hot, humid day like we've done recently. Older producers are sick and tired of doing this type of work and the younger producers don't want to and won't do this sort of work when they can row crop in a air conditioned tractor cab! Why would a producer care if the beef market goes away completely with current profits and weather?

J Whitfield    
South Mississippi  |  July, 30, 2011 at 09:03 PM

I agree and disagree simultaneously. I am a small producer (40 head) cow/calf op, my grandfather ranched about 300 head back in the 60's and 70's. I, just like he, sell at auction. He always made money. We are not going to drive out the demand for beef. I live close to the Gulfport/Biloxi and New Orleans markets. We as producers will have to change the way we market beef - custom sell, custom slaughter. I agree the feedlots and packers are driving out many producers, and thereby are cutting their own throats. But a great deal comes from producer unwillingness to change the auction/feedlot/packer mindset. Change the market. I'm in and plan on staying in. I have seen increased demand for beef, not decreased demand. The way we sell and market beef will change. We as producers will have to be smart about it. I believe the next few years will be full circle to 75-100 years ago: raise local and sell local. My father (USDA) believes poultry demand will grow, but local beef will skyrocket.

Debbie Purvines    
Amarillo TX  |  July, 31, 2011 at 11:52 AM

With 2.48 billion pounds of US beef projected to be exported this year, it would seem we do not consume all we produce. In fact, foreign consumers must be willing to pay more for this beef than domestic consumers or it would not be exported.

Joe Costine    
Lakeland, FL 33810  |  July, 31, 2011 at 08:52 PM

Ms. Purvines has a point. As I understand it, we export high value cuts of meat and import ground beef. I'm not saying this is good or bad.

CJ Oakwood    
Illinois  |  August, 04, 2011 at 05:01 PM

We over build everything in the good ole space, homes, and we did a pretty good job of way overbuilding feedlots and packing houses. Cow numbers have a ways to go before they hit bottom. We do a very poor job of utilizing dairy/Beef in this country and that may be the salvation of the beef cattle industry in this country. I do not mean Dairy/Beef from Holstein steers, but dairy Beef from Hol X Beef cattle. Can we really afford to breed a cow to raise only one calf? We are building more "Golden Arch Steakhouses" than real white table cloth ones! Corn is not going to get cheaper anytime soon, in fact it will get much higher. Yes we need to do more on less acres, but you can only push that pencil so far and you can go overboard on that deal! It may be the time to be a SMALL Size .....More profitable producer in a lot of arenas in Agriculture!

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