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. cattle herd, including dairy cows and beef animals on feedlots and ranches, totaled 100 million head as of July 1, the fewest at that time of year since at least 1973, the USDA said July 22.
As of July 1, the U.S. feedlot herd of beef cattle totaled 10.451 million head, up 3.8% from a year earlier, the USDA said in a report July 22, as drought forced ranchers to sell more livestock.
Beef producers are culling cows and young females, which means smaller supplies for the next two years or longer, according to Steve Kay, the publisher of Cattle Buyers Weekly, a trade magazine based in Petaluma, California. The cattle and calf herd next year may fall to the lowest since 1952, increasing costs for meat processors including Tyson Foods Inc. and Cargill Inc., he says.
The drought is drying up hope for rebuilding the beef herd this year or next. Hay is in short supply and prices are running high. The herd liquidation is increasing. The falling cattle herd is going to put more stress on the cattle-processing industry. Beef is going to continue to be more expensive for U.S. consumers.
Feedlots also are accelerating sales to meatpackers, which will ultimately result in lower beef supplies and may send cattle to a record by the fourth quarter, says Don Close, a market director with the Texas Cattle Feeders Association in Amarillo.
“Sale-barn receipts for cows and calves have been extremely heavy because guys are out of feed or out of water and don’t have a choice but to sell their cattle,” Close says. “It’s going to make a tight supply even tighter, as we get down the road.”
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% 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% from last year. The report estimates the 2011 calf crop at 35.5 million head, down 1% from 2010.
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.
It seemed recovery was on the horizon, then the drought hit. 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 the industry already operates under the pressure of excess capacity. Nationally, feed yards are at about 68% of capacity. In other words, at least 30% 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.