There is a full-on standoff in fed cattle trade; boxed beef prices have declined and packers want to hold a positive margin—who wouldn’t? Meanwhile, feeders are setting higher prices for live cattle and appear to be holding the line. Winter weather throughout feeding country in the Plains states has been tough. Cattle are losing weight and the cost of holding them is getting tougher.
Corn prices have retreated a bit, but not enough to change feeding dynamics. The price of gain in feedlots is about $1.30-1.40. Lighter weights should have an effect on overall tonnage produced. Mud has become a big problem, with packers only willing to buy cattle dressed at a $2-3 discount.
Everyone is looking at 2014 and wondering if this next year will be a repeat. The Cattle Inventory report is suggesting a national cow herd of 28.8 million cows, and in 2014 we bottomed out at 28.2 million head. With the expansion of export markets, I would already think we are at a new trading level. Packers are going to start playing hard ball, and now is the time for beef producers to play the same game.
Sometimes it is hard to understand the relationship between packers and cattle feeders. The cattle feeding industry has consolidated, like the packing industry has always been. It will be interesting to see who has the leverage in the market right now.
Cattle feeders have been feeding lots of cattle for little-to-no profit. They seem content on breaking even on the cattle while they make their real money on feed margins and bunk space. The old hotel restaurant theory.
When it’s time to buy beef, or that prime rib for Christmas, producers don’t seem to care much about price. They care when we get down to the ground beef point. They don’t care what the cost of production is as long as they can buy ground beef for under $5/lb.
What always perplexes me is consumers love beef and have been paying an average of $7.60/lb. for fresh beef. We are twice the cost of competing meats, and production costs are much higher than competing meats. But they keep on paying for the product, regardless of cost. Mother Nature has a hand in beef production, and when drought hits, volume declines. The beef industry could be a growth industry if we could figure out a way to raise them with less of Mother Nature’s influence.
How do we do that? The same way we’ve always done it. Technology. Corn yields have gone up dramatically since GMO corn came along. We have the genetic analysis to choose the right genetics for every region of the country. Purebred breeders have done a fantastic job in genetic improvement, with 85% of fed beef production grading Choice or Prime.
But how do we overcome the cost of gain challenge? If we’re going to continue to produce a pound of beef with six pounds of grain, I think we’re going to fall behind in the protein production business.
And then how will these cow-calf operations work in the future? There are not many of these ranchers’ kids who want to come back to the ranch and take a couple rounds around the calving pastures when it is 0 degrees outside. It takes special folks to raise cattle.
It seems that our culture appreciates what agriculture does, but not enough. Feeding the world has become too complacent, and populations expect inexpensive food—at least in the U.S., the rest of the world has more respect for food.
Then we hear about these ultra-elites who have gathered in Davos, Switzerland, once a year for the past 50 years. The World Economic Forum is where the rich celebrities and governments meet to change the world. They want to tell us how to combat climate change in a historical way. Our friend Al Gore gave a passionate speech about the need to act now, and that we need money to do it. He means your money—other people’s money.
Many of these attendees I would consider to be parasites because all they want to do is latch on to your money and make regulations that make it harder to produce food and feed a growing world. Global warming is about the money and who gets to latch on to it.
We’re going to need rational leadership to fix this problem because these Davos folks certainly can’t make rational decisions about Mother Earth. — PETE CROW
