Monday, February 17, 2014

Beef prices

The drought over the last few years, first in texas, and then in the midwest, and now in california and the western states, has resulted in fewer cattle being retained for breeding and smaller herd sizes.  

That's translating directly into higher prices for cattle at all ages.  Calf prices right now are higher than I've ever seen them.  Beef prices average $5/lb in the markets, and the prices keep rising.  

At the ranch end, where the cattle are produced, there's a lot of happy talk.  After years of flat or declining prices, this is a welcome change.  As one news story puts it:  

"...A quarter pounder hamburger cost $3. The cost of the meat patty, I’m guessing, is less than 50 cents. Even if you doubled the price of the meat, making the burger cost $3.50, it would not affect sales much. Especially if the buyer often upgrades to a Big Mac EVM (extra value meal) for $4.95 or a McChicken for $4.34, not to mention a 16-ounce Coke for $1, a small latte for $1.60 or a medium shake for $1.80 in addition. Where else are you going to get a full meal for less than $5… Starbucks? I don’t see protesters picketing fast food places. The USDA (2012) said Americans spend 10 percent of their income for food. Another 50 cents on a burger doesn’t affect us near as much as a $1.50 per gallon increase in gasoline. And in the steakhouses from Outback to Ruth’s Chris, the cost of the meat is an even smaller percentage of the cost of the meal...."  Source

If you're in the position to be selling cattle now, either finished beef or feeder cattle or stockers, you're in a pretty darned good spot to get a bigger check than ever before.  Now if you're in the position of buying, you're going to have to hunt hard for any bargains.  

I'd like to buy a few cattle this year, to feed out on my pastures I planted last fall, but these prices are really hard for me to stomach.  Yep, I know there's good reason for it, and I know it's going to take years to provide more supply -- 2 to 3 years... but it's tough to put out that kind of money for a cautious guy like myself.  

If you're in the market for beef, you might want to accelerate your purchase.  It's not going to get cheaper this year.  


EBrown said...

Kit Pharo - - knows his way around ranching and beef production. He's warning cattle producers that the good times are here now, but we're set up for a perfect storm over the next decade or two. If beef prices stay high for too long more and more people will shift their buying habits away from beef altogether. Couple that with the fact that the average age of ranchers these days is over 60 (many are not expanding their herds at a rapid rate), and teh beef industry stands a chance of going the way of the sheep industry of a 100 years ago. It might collapse and drop to a shadow of its former self.

I don't know what to think of his case, but it's an interesting possiblity to entertain.

George said...

I don't think the Angus association will let that happen. Americans will always have a demand for beef.

I'm trying to convince the farm owner here that selling off our weaned calves will profit him about the same as having to grow them out right now, and leaves us more room to increase herd size right now by retaining heifers. We're seeing 2-2.50/lb live weight for good beef cattle. Even old dairy cows are pulling up to $1/lb live weight, which is unheard of.

I'm going to be stuck in the same position as you Bruce, we're looking to move farms within the next 1-2 years and start our own beef heard on leased ground, but right now that just doesn't make a lot of sense when bred heifers and cows are going for $1500, and cow/calf pairs are going for $1800.

EBrown said...

With all due respect the point of his thought experiment is that the beef market is ultimately controlled by the consumer and even the mighty Angus association is at its mercy.

I'm not saying I think he's right, but I am saying it is worth considering. And the only way to "stay safe" business-wise if this scenario comes to pass will be to be direct marketing most of one's own meat.

Here are three email responses he included in his most recent newsletter. These quotes are from ranchers.


You are spot-on with your comments in the "Lone Voice" article last week. If beef producers don't think the consumer will change to pork or chicken for meat protein, they are dead wrong. I grew up on a ranch and I want my family to eat beef. However, when my family goes out my wife often orders chicken, along with my son and daughter. Steak is great but chicken and pork are easy and much less expensive.

A prophet is never welcome in his home town!!!!

Larry Feight – Montana


Your remarks in the Winter 2014 Newsletter about the herd size and cost of beef to the consumer were dead-on. To those who "unsubscribe" over fact and experience-based comments, you are best rid of them.

I watched the German (VW) and Japanese auto industry enter the U.S. – beginning in the 1950s. The Japanese concentrated on quality and cost and overwhelmed Detroit.

There is a lesson in this. Our beef industry MUST do what it takes to put affordable beef on the plate of the average working person. If we don’t, the beef industry will be reduced to a fraction of its current size.

Mel Burns – Oklahoma

In reference to your “No Longer the Lone Voice” article… this is what I've been saying whenever I hear or read people say that these are good times in the beef industry. They are perilous times for any industry when market share is contracting, regardless of current per animal profits.

Jason Rowntree led off his talk on grass-fed beef at our Small Farm Conference with the question something to the effect of, "Is beef destined to be the next lamb?" Though I don't think that's close to happening, just the thought should send shivers down the back of the beef industry.

In the last twenty years, the beef cow inventory has dropped by about 10%. The problem, of course, is that a drop in inventory results in an increase in price (Econ 101), which then leads to a decrease in demand, which leads to a drop in price or drop in inventory. It can start a vicious cycle.

Just some thoughts.