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Cattle crunch: High market, high costs
Prices not
high enough as recipe works against beef producers
“As high as the prices are, they aren’t high enough,” said Klamath County producer Lynn Pope. “I’m concerned about costs: Production costs are running ahead of income.”
Faster cycles
Cattle market trends, which were usually on a slower decade cycle, rapidly change on almost a yearly basis now, said Klamath Basin Research and Extension Center agents.
Research and extension center director Willie Riggs said now is the time producers should evaluate management practices, look hard at goals and evaluate wants versus needs to survive the low tide of the market.
Riggs said the hope is that people prepared for lean years when profit margins were better, by rebuilding infrastructure and decreasing debt load.
In Klamath County, cattle — at more than $116 million in 2007 — make up 39 percent of total agriculture commodity sales, the single largest chunk.
Cow-calf pairs and yearlings are the predominant cattle commodities. Nationally, cow-calf returns are down this year, with the per cow loss almost at $50.
Returns on cattle feeders, which are normally sold to feed lots or need to be fattened before slaughter, also are in the red, at an almost $100 loss, according to the Livestock Marketing Information Center.
To combat low returns, national cattle inventory had decreased since the 1980s, from 115 million head in 1983 to fewer than 100 million head this year.
Pope said he expects to see those national inventory numbers drop until prices go back up.
Over the years, he’s adjusted his cow-calf and bull operation and there isn’t much left to change.
Growing alfalfa and hay as well, the fourth generation operation is able to offset some feed costs of the cattle operation, but Pope said the economics make him wonder if it isn’t better to grow more hay than raise cattle at this time.
Other livestock sectors have a more integrated system and uniform product, whereas beef — buffered for almost half a century by government-subsidized corn — is sold by grade, up to the most coveted “prime” rating, Riggs said.
Greater expectation
The expectation of prime steak — while a good eating experience — comes at a price, and consumers will have to make a decision on whether they’ll pay the higher prices or lower their expectations.
But Americans soon will be competing on a global level for their steaks, as countries like China and India grow and have more disposable income to spend on choicer entrees.
“They’re adapting tastes and practices, and it’s hard to go back,” Riggs said, adding that these countries want and are willing to trade a high carb diet for the protein heavy diet Americans have enjoyed for decades.
Product variance, on top of the long investment in cattle from birth to dinner plate lasting about two years, also makes the cattle market more persnickety and susceptible to changes, said Chanda Engel, Klamath Basin Research and Extension Center livestock agent.
Other animals, like swine, have a more locked in market that can turn around a new product in three to four months.
Side Bar
Record-keeping,
preparation keys to better position
The loss of abundant, cheap corn feed to the bio-ethanol fuel market also put a crunch on the national cattle market. Growers competing with bio-fuel companies for feed are driving up the price.
Chanda Engel, Klamath Basin Research and Extension Center livestock agent, said that especially this year, well-kept production records will be available, so that when it comes time to cull, producers are looking to cut low-producing cows.
The price to feed a low-end producing cow is the same as the high end, said Willie Riggs, director of the Klamath Basin center.
Also the evaluation of feed costs on price per nutrient will be an important evaluation tool, so cattle are eating more efficiently and not just filling their stomachs, Engel said.
Riggs added that it is also a good time to seriously evaluate price per unit and do the calculations to figure the conversion rates and production costs of growing one pound of beef.
How long producers have been raising cattle and how they’ve buffered themselves from more flush years will probably be make-or-break points for many producers, Riggs and Engel said.
Older producers, who’ve had time to whittle away at debt and perhaps diversify their operation, are in a better position, Riggs said.
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