A look at the cattle market through the eye of a farmer’s daughterFebruary 11, 2016
With an anxious stomach and tired eyes my father and I made the short trip to the local sale barn where we typically sell our calves. I always look forward to sale days, it’s typically an exciting time to watch my father’s hard work in animal husbandry finally pay off. Fast forward a few hours later and I begin running the numbers from the check he received while walking to the truck. We were expecting a pretty big hit because of the recent falling prices, so I guess we weren’t that surprised when we received about half as much per head this year compared to last year’s prices. We spent the afternoon talking about what happened at the sale and why the market itself had taken such a large hit—a question many other producers have also been talking about.
Nearly a year and a half ago, cattle producers were jumping for joy with the sky-high prices they were receiving at the sale barn. Corn prices may have been low, but cattle prices were high. As a farming family we expect a little give-and-take situation when it comes to cattle and grain prices. We were more than pleased with the outcome of our calf sale in December of 2014. However, this past December was a different story.
As the prices fell, consumers (and some producers) assumed that the retail prices of beef would also fall. However, that is not the case. Grocery prices tend to be much more stable than the volatile commodity markets. Meaning that when the commodity prices move up and down, grocery prices do not fluctuate as well. The beef prices we are currently seeing are lagging behind the market prices we are seeing. To put this in perspective, according to the Bureau of Labor Statistics, all uncooked ground beef was priced on average at $3.895 per pound in December of 2013. In December of 2014, BLS reported ground beef as $4.598 per pound. This is an eighteen percent increase in one year. This increase in price has many cattle producers wondering who this extra profit is going to.
The steady increase in beef prices may seem like a bad thing to the general public when it comes to buying retail cuts of meat, but it is important to keep in mind that the United States has some of the safest food in the world. The average American spends about ten percent of their disposable income on food. Whereas, some countries spend upwards of thirty to forty percent of their income on food. We are fortunate to live in a country that has one of the most affordable food industries with some of the strictest regulations when it comes to the production and processing of agricultural commodities.
The cattle market is different from other livestock sectors because it is not as nearly as vertically integrated as the poultry and hog operations are. This means that many of the steps of beef production are not owned by the same entity. However, the market itself is more private than what one may think. The privacy of the market comes from the agreements made through feedlots and meatpackers. Many large feedlot productions hold contracts with a few (but very large) meatpacking plants. This allows for some of the feedlot owners to sell their fat cattle at a predetermined price as long as certain qualifications are met (such as weight and overall quality of the animal). When cattle prices are low, meatpackers make a larger profit. When cattle prices are high, meatpackers make a lower profit. Thus, they may take a financial hit.
There are multiple factors that play into the way the market moves from its highs to lows. High land prices shoot cash rent prices up. Producers are losing the opportunity to graze cattle while investors buy out these grazing lands. While we are still producing as much beef as ever, our cattle numbers have been decreasing since the 1950s. We are able to keep the amount of beef production at a constant thanks to technological advances through reproduction and management techniques. The droughts that America experienced in 2013 and 2014 forced many producers to sell out their herd or a large number of their inventory.
Because there are only a few large meatpackers in America, some feed lot producers tend to think that meatpackers are able to negotiate (and somewhat control) prices with feedlot producers. This means that they are supposedly able to charge increased prices at the grocery store while buying the fat cattle at low prices. This could potentially put feedlot producers in a tight spot and could hurt the cow/calf producers as well in the long run. However, according to the USDA ERS, live cattle at 65-80% Choice have increased in price from $143.33 cwt in January of 2014 to $214.72 cwt in January of 2015. This is a price increase of 71% in one year. In fact, the live weight of Nebraska steers have been on a significant increase since 2010. This would include prices before the overall high market of beef prices. So maybe it is not the meatpackers increasing retail prices, but rather the feed lots themselves.
Cow/calf producers are theoretically placed on the bottom of the totem pole in the beef production industry. This can sometimes make it harder for them to understand the connection between low market prices and the high retail prices they may see at the grocery store. However, as a consumer, there may be a way to cut these costs.
Buying in bulk is almost always economically smarter than buying from the grocery store. When purchasing beef through a meat locker, it may be cheaper to buy a quarter, half, or whole processed carcass rather than buying beef as you need it from the supermarket. It is also a good idea to create a relationship with your local butcher, he may be able to fill you in on cheaper cuts of meats and let you know when certain cuts may be going on sale.
If you can, buying local is almost always a plus. You may be able to find a small beef producer within your community and let him know ahead of time that you are interested in purchasing one of their processed carcasses. Building a relationship with a beef producer is a good way to know the exact source of your beef.
One of the best parts about coming from a farming family is learning about the markets. Although we may struggle with the understanding behind low market prices such as these, it helps us to be thankful for the high markets and good times. But no matter what direction the market may take, I promise to be thankful that I was raised in a family that farmed and supported my curiosity for agriculture. Even if I did have to stick my Barbie sandals in a manure pile or two.