Thanks to declining cattle numbers, beef prices pushed to record highs
SHARON, N.D. -- Veteran rancher Keith Johnson has lived through droughts, blizzards and long stretches of poor prices. That makes him appreciate this winter even more. Beef prices have soared to record highs, reaching levels he describes as "unim...
SHARON, N.D. -- Veteran rancher Keith Johnson has lived through droughts, blizzards and long stretches of poor prices.
That makes him appreciate this winter even more. Beef prices have soared to record highs, reaching levels he describes as "unimaginable, the highest we've seen in our lifetime."
He and his family recently sold 179 steers for an average price, after expenses at the auction barn, of $1,082 each. A year earlier, their steers sold for an average of about $800 each.
"This year's price was just absolutely unbelievable. It's sweet," says Johnson, who runs a cow-calf operation with his sons, Chris and Jeremy, and his brother, Wayne, near Sharon, N.D.
Nationwide, the price of live cattle, or cattle ready for slaughter, has soared to a record $1.26 per pound, up 20 percent from a year ago. Prices are expected to rise even higher during 2012.
Experts point to two reasons for the big increase:
• U.S. beef exports are extremely strong. Through October, with two months in 2011 still ahead, U.S. beef exports totaled a new annual record of $4.49 billion, according to the U.S. Meat Export Federation. Mexico, Canada, Japan, South Korea and Russia are all buying much more beef.
The weak U.S. dollar makes American beef more affordable to foreign consumers, says Tim Petry, livestock economist for the North Dakota State University Extension Service.
• U.S. cattle numbers continue to shrink, reducing the supply of beef. On Jan. 1, the United States had 90.8 million cattle and calves, down from 92.7 million on Jan. 1, 2011, and the lowest Jan. 1 inventory since 1952, when 88.1 million head were recorded.
Drought in Texas and surrounding states gets most of the blame. Many ranchers there, short of grass and hay, were forced to sell cattle.
To put the cattle numbers in better perspective, consider that the United States had 157 million people in 1952. Today, it has about 311 million. So the U.S. population has doubled in the past 60 years, while the number of cattle in the country is roughly the same.
To be sure, the U.S. beef industry has become more efficient through the past six decades, allowing more beef to be produced from the same number of cattle, Petry says.
Even so, beef supplies are tight, causing the market to push up both cattle and beef prices, he says.
Retail U.S. beef prices reached a record $4.57 per pound in the middle of December, the last month for which data is available, up from $4.11 a year earlier, according to data from the U.S. Department of Agriculture.
Pork and lamb prices have climbed to record highs, too, Petry notes.
Pork exports are strong, thanks to the weak U.S. dollar, while strong and growing ethnic demand for lamb has pushed up its prices.
Rising cattle and beef prices come against the backdrop of the weak U.S. economy and years of declining U.S. beef consumption.
Despite the weak economy, many Americans still want beef and can afford it, although some may switch to cheaper cuts, Petry says.
Americans on average ate an estimated 57.5 pounds of beef per person in 2011, down from 59.6 pounds per person in 2010, according to information from the Livestock Marketing Information Center.
Americans ate less beef per person last year than in any year since records began being kept in the early 1950s, the center says.
Americans' per-capita consumption reached a record high of 94.3 pounds in 1976, when beef supplies were at record highs.
There's a strong connection between beef supplies and consumption of it, Petry and others say, and per-capita beef consumption won't rise until and unless beef supplies increase.
Increasing beef supplies would help to protect beef's market share against competition from other meat, cattle industry officials say.
Rebuilding the herd
Strong beef prices will encourage cattle producers to increase their herds. But that's not going to happen overnight, experts say.
When prices are high, some producers hold back female calves from the market. Eventually, the calves become cows and have calves of their own that producers sell. However, it takes several years for the calves to grow up, be bred, give birth and have their calves reach slaughter weight.
And while producers in drought-stricken areas want to build up their herds, they lack the pasture and hay to do so, Petry notes.
"Weather will be a wild card" in determining when and how fast U.S. cattle numbers rise, he says.
Another factor is at work, too, says Dale Lueck, an Aitkin, Minn., cattleman and a spokesman for the Minnesota State Cattlemen's Association.
Crop prices are strong, so farmers are more likely to plant crops on some land once used for pasture or hay. With less grass and hay available, cattle producers have less ability to increase their herds, Lueck says.
'It's time' for higher prices
Many cattle producers nationwide were breaking even or even losing money as recently as 2009, according to industry officials.
Both declining demand and the high price of corn, a major feed source for cattle, were working against cattle prices.
Given recent difficulties, "It's time" that cattle producers enjoy some prosperity, says Kim Baker, a Hot Springs, Mont., cow-calf operator and president of the Montana Cattleman's Association.
One of the biggest questions is whether cattle prices will stay high enough long enough to attract more young adults into the business, she says.
"We need more young people," she says.
Even with the current high prices, getting started in cattle is very difficult without help from someone already in the business, she says.
Lueck says he thinks strong prices will encourage more young cattle producers to enter the industry.
"We'll see some of that. But it's hard to say how much," he says.
Baker, who's spent 20 years in ranching, says she's skeptical that cattle prices will remain strong for long.
"What goes up usually comes down," she says.
Keith Johnson figures that cattle producers' profits will get squeezed as expenses rise.
A lot of things (expenses) haven't gone up yet. They will. The higher that cattle get, everybody will want a piece of the action," he says.
A passion for cattle
Johnson, 61, and his family raise crops in addition to cattle, but he's always been able to concentrate on the animals.
"This (cattle) has been my passion, I tell people I've farmed for over 40 years and never seeded a kernel of grain or drove a combine. We've always had enough livestock on this place," he says.
As he feeds cattle on a bitterly cold January morning in what's been a generally mild winter, it's clear that he likes and understands the animals.
The Johnson cattle are a cross of Red Angus and Simmental, two popular cattle breeds. About 500 cows will give birth his spring, and the calves will be sold next spring. It's what's known in the cattle industry as a cow-calf operation.
Johnson lives a short distance from the house in which he grew up.
"I tell people, 'I never went too far in life. I live at the end of the driveway from where I grew up,"' he says.
He's careful to give credit to the landlords from whom his family rents land.
"We're fortunate. We've had relationships with the same people for many years. Many of them are retired and grew up with livestock. They respect hard work and they know a lot of hard work goes into raising cattle," he says.
Johnson, who's active in several cattle organizations, says he's a little concerned about how beef prices have climbed.
"One of my fears is that we can get too expensive. Right now, the only thing propping up these prices dramatically is that we are short of numbers," he says.
Even so, "We still have the cheapest supply (of beef compared with other countries). We have a good value," he says.
He also says that "beef has proven to be very healthy, and it's getting healthier."
Reinvesting in the ranch
One of the most important adages in production agriculture is the need to reinvest in your operation in good times.
Johnson is doing just that.
"I've been upgrading a lot with the cattle, and it's been great we've been able to do it. There have been a lot of years we didn't have money to put (back) into it," he says.
He recently bought a manure spreader for about the same amount of money as it cost to build his house in 1980.
"I never ever thought I'd see the day when you could spend that much on a manure spreader," he says.
But the spreader increases efficiency and is a good investment, he says.
He's also replacing aging wooden fences with metal gates. He's bought more than 200 of the gates so far.
"They're not cheap," he says of the gates. "I've penciled it out. Wood fence costs $6 to $7 per foot and they (the metal gates) cost $10 to $11 per foot. But the wood will decay, and the gates don't. And the gates can be moved. Someday, if I had to, I could sell the gates to somebody else. I couldn't do that with wood,"
If cattle weren't profitable, Johnson says, "I couldn't be putting that kind of money back in" to the operation.
He doesn't think the family cattle operation will expand. It's already at capacity, and the family doesn't want to rent more pasture or hay land. Doing so would hurt neighbors who rent the land now, Johnson says.
"We just don't believe in doing that," he says.
He's content to enjoy the record cattle prices and the generally mild weather, and to prepare himself for another grueling calving season.
And what would he say to consumers about high beef and cattle prices?
"I'd tell them the time has come. (Raising cattle) is a lot of hard work, and there have been a lot of years we just didn't make much money," he says.
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