Export Demand Brings Seller's Market For Beef

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Despite the downturn in the economy across the nation, for California beef producers the grass has been green this year and is likely to remain so for the foreseeable future.

A tight inventory of producing cattle, combined with a burgeoning export market, has resulted in what one cattle rancher described as a “seller’s market.” An informal poll of producers at last week’s California Cattlemen’s Association annual meeting in Sparks, Nev., generated a number of optimistic responses.

Plumas County rancher Jack Sparrowk, who has a 2,500-head beef herd, has been ranching for 45 years. He plans to stay the course in his operation.

“We have had pretty good years for the last several years. For me, it’s steady as she goes, short term and long term,” he said. “We have been exporting a lot of beef and I see the export demand increasing as long as the dollar stays where it is.”

Ione rancher Duane Martin also credits the export market for putting more dollars in cattle producers’ pockets.

“The beef business is pretty good today. One thing that is really helping is the value of the dollar. We are able to export a lot of meat out and not import meat in, so that creates a shortage, I guess. That’s been good for us,” he said.

But it isn’t all roses, the two veteran ranchers note.

Sparrowk points to constantly rising input costs and government regulations.

“The worst thing facing us is that our expenses continue to go up for energy, fertilizer, freight, insurance and things of that nature. And government regulations don’t help either,” he said.

Martin points out the continual cutting back on public land for grazing leases.

“We have less pasture available to us all the time. The goal of environmentalists is to get cattle off of all national lands, so they keep cutting us back and making it tough on us. So there is just less pasture and we can’t expand. Expansion will not happen,” he said.

Calaveras County rancher Michael David Fischer agrees that finding sufficient range is a problem.

“I lease about 5,000 acres in Calaveras and Amador counties and the biggest challenge I have is keeping ground. There isn’t a lot of lease land available. And with the price of land, we cannot pay for that ground by running cattle. You have to have another alternative available to do that and it just doesn’t make it feasible to buy these big places,” he said.

Like Sparrowk and Martin, Fischer’s herd consists primarily of angus and charolais crosses, which produce an animal that is highly sought by processors and marketers. He said he is holding back some heifers this year for replacements and also for a small expansion of his herd.

“We have such peaks and ups and downs. When prices are good, producers seem to retain more cattle if they can. A lot of people cut down on numbers because of the drought in previous years here in California and now everybody is starting to build back up. So there is a shortage of cattle right now,” Fischer said.

Attesting to the tight inventory of beef nationally is Duane Lenz, manager of operations and analysis services for CattleFax of Centennial, Colo., which provides research, analysis and information on the beef business.

“Just looking at numbers, in California in 1995 there were 850,000 beef cows and right now we are down to just a little over 600,000 cows. And this is a national trend. In 1982 nationally, we had 39.5 million cows and currently we are at 31 million cows,” Lenz said.

“We haven’t seen herds expand yet, which continues to baffle us. But I think there are a lot of other factors at work. We think prices will be higher next year and the year after and at some point there will probably be enough money that people will start keeping some of their heifers back, but we haven’t seen it yet,” he said.

Lenz said there have been some encouraging signals in recent months that the economy might be turning around.

“We are starting to see some of the restaurants starting to come back, reporting some bigger sales year over year for the first time in two years. Fast food is starting to pick up again in the last month or two,” he said.

Lenz noted that a strong export market is helping to bring the higher prices to ranchers, and Erin Daley agrees. Daley, an economist with the U.S. Meat Export Federation in Denver, uses two examples—beef tongues and short ribs—as meat cuts that add value to beef cattle at the processor.

“Offals and variety meats that have basically zero value here can bring more money to our producers. A classic example is tongues to Japan. That market was fully opened and adds $5 to $7 per pound. These are purely margin items and when we export these items it allows the packers to pay more for the cattle,” she said.

“When you look at just short ribs, for example, per head of cattle slaughtered, $16 to $25 per head is a conservative estimate of what that one cut added. That is in all Asian markets, but especially evidence of the strong demand in Korea this year,” Daley said.

Approximately 12 percent of U.S. beef production is exported, with Mexico and Canada as the leading importers.

“We have seen a larger portion of beef production going overseas. For beef, the growth has been across the board—very strong growth in Asia, including Korea, Japan, Hong Kong and China,” she said. “Taiwan will set another record this year. Russia will set a record. The Middle East will set a record for muscle cuts. The only laggard on the beef side is Mexico and they are suffering from the same problems we are having in the U.S. and also a weaker currency relative to pre-crisis levels.”

The mood was upbeat at the CCA convention. Lenz noted, “I am very optimistic. With tight supplies and growing demand, it is hard to paint a negative picture. If folks can find a way to get into the cattle business, it is probably going to be a pretty rewarding business in the coming years.”

But finding a way into the business can be a challenge, says Sunol rancher Carissa Koopmann, who leases land from her father for her small herd of red angus.

“I am trying to get started, but as a young operator it is really difficult to branch out because I am not able to find property. It is really expensive and people can always bid more than I can. This is a very huge hurdle to get over for anyone my age,” she said. “I am working really hard and hoping for something to come along, talking with a lot of local ranchers and trying to catch a break.”

Source: Steve Adler, California Farm Bureau Federation



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