Read carefully the attached article that appeared a few months ago and comment on it.
The 2012 January 1 Cattle report from USDA shows U.S. beef herds at their lowest number since 1952. Producers have begun retaining more heifers for breeding, which eventually should turn the trend around. But removal of those females from feeder-cattle supplies will mean U.S. beef production will shrink even more before it begins to grow.
The USA Today article notes that USDA projects retail beef prices, currently at record levels, will increase by another 4 to 5 percent this year. The article quotes Drovers/CattleNetwork’s economic consultant John Nalivka of Sterling Marketing, saying beef prices could rise even faster, as much as 10 percent this year. Nalivka also notes that as cattle prices have climbed to record highs, packers have absorbed significant losses as wholesale beef prices have not kept pace. Retailers also have resisted passing all of their higher beef costs on to consumers.
Even so, retail prices for Choice beef and all fresh beef set new records in December according to USDA’s report on meat price spreads last week. The report lists the average retail price of Choice beef for December at $5.02 per pound, up from $5.00 in November. For the fourth month in a row, the Choice price set a new nominal high.
The role of beef exports in higher U.S. cattle and beef prices is well documented, but domestic demand also has held up surprisingly well. University of Missouri economist Ron Plain, PhD, reports that based on preliminary data, , beef demand was up 4 percent in December and up 1 percent for all of 2011. Beef demand was down in 2008, 2009 and 2010, largely due to the economic downturn.
Continued inflation in retail beef prices, however, eventually could threaten domestic and international demand for U.S. beef, resulting in lost market share to other proteins or other beef exporters. To address these threats, Drovers/CattleNetwork will this week launch MoreCowsNow.com, an in initiative intended to supply producers with tools and information to cost-effectively expand their herds.
Fortunately, last-week’s Cattle report shows a slight shift in the long-term liquidation trend for U.S. beef-cow numbers, with the number of replacement heifers up by 1 percent over one year ago. The increase suggests producers in areas with adequate moisture have begun responding to market signals to expand their herds or sell replacement heifers, which have gained considerable value recently.
A state-by-state listing of beef replacement heifer numbers in the report reflects regional differences in precipitation and forage supplies during 2011. Oklahoma replacement heifers are down by 15 percent and the Texas figure is down by 10 percent. In contrast, beef replacement heifers are up by 29 percent in Colorado, 17 percent in Iowa, 18 percent in Nebraska, 14 percent in South Dakota and 18 percent in Wyoming.
If weather conditions allow it, the trend toward more heifer retention is likely to continue and accelerate over the next few years. Until significant numbers of those additional heifers produce calves, and those calves reach market weights, calf and feeder numbers will remain tight. Prices for all classes of cattle are likely to continue upward, as will retail beef prices. The next couple years will be interesting times in the U.S. beef business.
19 comments:
It's interesting to see how cattle supply has been limited. Yet, this situation is the perfect opportunity to apply the very essence of economics: to allocate the limited resources of cattle in order to maximize the satisfaction of both consumer and producer. The MoreCowsNow initiative has shown some progress to counteract the record lows of cattle numbers. However, if the beef industry cannot catch up to their significant numbers of calf production, inflation of beef prices will lower consumer demand. People will then turn to alternative options such as chicken, tuna, seafood, etc. People will cope; however, the beef industry may find a decrease in sales.
Recently, the production of beef is caught in another controversy called “pink slime”, which implies that beef fat is treated with ammonia (this kills any harmful bacteria like E.coli). The FDA claims it is not harmful to the body and at one point most have eaten beef with “pink slime”. According to www.pinkslim.biz, “In 2012, the USDA had contracted to buy 111.7 million pounds of pink slime ground beef for the nation’s school lunch programs. The uproar over pink slime will undoubtedly cause that amount to drop.” However, this is not the first time the beef industry is being put under the microscope. Since there is such a high demand for beef and leaner beefs, some companies have resorted to using chemicals and synthetic hormones in order to produce more beef. Not to mention the mad cow disease epidemic back in 2003 and 2005. Although, some Americans will continue buying beef and restaurants will continue to serve burgers. My point is with all this controversy surrounding beef; I feel that consumers will just go for substitutes like chicken, pork or fish. Beef prices may be increasing but demand for beef will have a slight decrease.
The U.S. Beef Industry seems to be in a bit of trouble. The biggest problem that I see here is that in order to produce more beef in the long term, they need to cut down beef production in the short term, effectively making the problem even worse. The article went as far as to say that foreign demand for U.S. beef could decline as a result of this. Unfortunately, if they dont keep more breeding females out of the slaughter houses, they will not correct the problem. It is a mandatory loss of profits, if they dont go along with it they will go bankrupt. The only choice the U.S. Beef industry has is whether it wants to lose a lot of money now or lose a vastly greater amount later down the road, and neither of those options are very good.
Almost every business entity in the U.S. goes through their highs and lows and the U.S. Beef Industry is no exception. According to the USDA cattle report the “U.S. beef herds are at their lowest number since 1952.” Because of the scarcity of beef the prices are rising. This sets up a perfect example of the main principles of micro-economics which are allocation, scarcity and maximization. Since the beef is becoming scarcer the U.S. beef industry has to correctly allocate their limited resources in order to maximize their profit along with consumer satisfaction. If the inflation of beef prices becomes too high then demand goes down. Now if the marginal cost of beef exceeds a person’s marginal benefit they will switch from something more inexpensive such as chicken or fish. I believe that the U.S. beef industry will see more and more lose as the price of beef increases.
Marco Muccitelli
There is a major dilemma in the market for beef. This dilemma is brought about because US beef herds are right now at their lowest since 1952. Therefore the supply of cattle is now limited which already isn't good for the market, since due to this scarcity prices will rise which will cause the basics of microeconomics to take place. Allocation of goods to receive the maximization of limited resources. Along with this, an attempt to maximize profit with consumer satisfaction. If the prices become too inflated; however, the demand will decrease and this may then lead for consumers to change to substitutes of beef due to cheaper prices. This will lead to a loss of profit for the producers of beef. So a decision must be made and it is not an easy one. Since in order to produce more beef in the long run, there has to be a cut down in beef in the short run which will make the problem of inflation worse. Since if cows and cattle are saved now so they can procreate in the short run the US beef industry will be hurt, but possibly saved later due to having more resources. For now this More Cows Now initiative needs more time and is unable to catch up for now with calf production, causing a current inflation. This inflation not only hurts the US on the inside of our country but also our trade with others so hopefully there will be a found solution soon so the market is not affected further.
The beef industry today is going downhill. According to this article, over the next year beef prices are going to increase as much as 10%. This is a huge problem that could threaten domestic and international demand for U.S beef. They are breeding more heifers but as of right now there is a higher demand for beef then can be produced which means that prices are going to continue to rise before the price for beef evens out. The only option right now is to keep increasing the price of beef and hopefully lower the demand until the beef industries can catch up with the consumers demand for it. It is going to be very interesting to watch the continued inflation in retail beef prices over the next few years.
The current issue with the beef industry is a higher demand of beef but not a fast enough growing supply of cattle. The prices of beef have been very inconsistent. Some retailers have raised prices while others try to keep it at the regular price. When the prices increase consumers will look for substitutes which lessens the demand of beef. This gives beef producers enough time to produce the demanded amount but takes business away from beef sellers.
The higher demand for beef of late is really putting a hurt on the U.S. beef market now. We must slow down these demands or there will be no more beef. We may have to just turn to other alternatives such as chicken until we can allow more for more beef herds to grow.
It is quite interesting how the beef industry in America is in some sort of crisis, especially because just over 5 years before there was that epidemic of the mad cow disease was sweeping the nation, causing citizens to be very apprehensive about their beef intact. It is also quite interesting how economics and scarce resources come into play. Something like beef that seems like it does not have a limited quantity is become something that is scarce. It is going to cause consumers to not want to buy beef. They are going to start to purchase things such as tofu, chicken, lamb etc. What I am wondering though is what are major fast food chains such as McDonalds, Wendy's and Burger King going to do because they pride themselves having low prices and cost efficient.
The cattle industry has been going through a rough time recently. All resources are scarce and we are seeing that with the cattle industry. Hence prices are going up because there is less beef, basic economics. But since there are substitutes such as chicken and fish, then people don't have to buy the beef at that high price because they have alternatives. This MoreCowsNow.com website seems like a good idea but it is going to need some time to be able to get going and really make an impact on the market. Since the launch there has been a "slight shift in the long-term liquidation trend for U.S. beef-cow numbers...." particularly in the states with "adequate moisture." But probably the best thing to do is wait till the companies catch up with demand to even everything out.
Over the years, beef herds have fluctuated in size and in January 2012 USDA reported U.S. beef herds at their lowest number since 1952. Due to this, beef retail prices will increase by another 4 to 5 percent. However, this does not benefit packers because wholesale beef prices have not remained stable. The demand for beef has fluctuated as well due to the economic recession, but later increased in 2011. The issue with continued inflation in retail beef prices is that it could threaten domestic and international demand for U.S. beef. Their solution to this problem is to launch a website (MoreCowsNow.com) which would supply producers with tools and information to cost-effectively expand their herds. I believe that this is a good and innovative tactic to reach a large audience. In today's technological world, this was a good idea because it is easily accessible to anyone. With long-term liquidation trends improving, I believe that producers will follow the tools and information provided, allowing them to increase their herd.
The USDA Cattle report has many effects on the US economy. The fact that the herd is decreasing and beef prices are increasing can mean less exports of beef to other countries. The increase in price will definitely effect international demand as consumers choose a different protein subsitute. The only solution to the problem is to increase the breeding of heifers which, according to the article already seems to be happening. This, however, is not an overnight fix and it appears that the industry will face quite a few economic struggles until the heifer population increases.
This article presents numerous correlations worth studying as it touches on so many factors that contribute to the price of beef, many of the following not mentioned: regional weather variations, fuel and transport prices, population growth, prices of alternatives, heifer retention ratios in the herd, heifer prices amongst producers, prices of feed, labor prices, foreign demand for domestic products, foreign demand for foreign products, and the rates at which producers pass their increased or decreased costs to the retail market etc. are major constituent factors of the final price on the retail market. While there are several interesting factors here, I feel an important question to look at is why “retailers have resisted passing all of their higher beef costs on to consumers.” [It is important to note the difference between the producer, the packer and the retailer.] The connection between the retailer, his costs, domestic consumer demand, and prices of alternatives are important factors. While information is not available here on retailer’s costs, it is known that transport costs have risen in the last four years. The price of gas has dramatically increased since lows in 2008 [the article points to a period since 2008, where demand was down due to the economic downturn]. However, food transports should be measured not in gas, but in diesel, since interstate food transports are moved mostly over highway by trailers, and in part over rail. On September 22, 2008, diesel averaged $3.95/gallon, and although it saw a dramatic dip to $2.03 in early 2009, it quickly recovered to $4.13/gal on September 24, 2012, a rise of 18 cents since about the same date 4 years earlier. [www.eia.gov] The diesel price matched to the beef price graph does not show a point by point correlation between the two factors, but the article indicates other factors that have more effect: weather conditions, foreign demand, and domestic demand. The article specifically draws a connection between demand, weather, and heifer replacements rates, concluding that continued elevated demand, coupled with elevated precipitation rates in certain areas, will keep beef prices high. However, the article indicates that prices have not risen accordingly for the consumer and that both packers and retailers have not recouped their losses from the consumer. This may have something to do with the retail prices of alternatives, specifically chicken, as the graph shows. While beef, veal and pork have moved together, chicken maintained a steady decrease as its alternatives moved much higher in the first half of 2010. Perhaps as the economy improved as 2010 moved along, the consumer was willing to spend more on beef, veal and pork, which retailers had absorbed losses on, and less of chicken, apparently a less desirable alternative. The major contrast in the article is heifer retention and demand and the forecast that rates will rise as demand rises. There are obviously numerous other factors to consider, as I have indicated above, but I feel the important questions will be what the packer and retailer do with their prices as fuel prices continue to rise and the economy continues to stagnate. Another correlation worth studying is, as the article states, beef herd populations are at their lowest rates since 1952 [90.8 in 2012, 88.1 in 1952 – a population increase, but a rate drop] and the US population rate versus the US reproduction rate. While both the US population and beef population rates have increased, the reproduction rates for both have dropped [US reproduction in 1950: 24.1%; 2009: 13.8%]. It appears that heifer retention ratios are indeed important.
People will not be able to enjoy a nice steak if the prices keep going up. The price of meat is high right now, I can't imagine in a few years if it keep going up. Another thing to consider about the price of meat going up is the price of producing the meat. Corn has gone up drastically, therefore making it more expensive to feed cattle. Gas is always a big issue. With gas prices staying high, the not only the transportation of meat, but also using fuel powered equipment is pricey too. The meat industry might have something bad coming for them. With the demand still high, the meat industry might be able to get away with it right now, but sooner or one people will stop spending a small fortune on steaks and buy an alternative
Today, the beef industry has experienced some extreme hurdles. Recently, there has been a increase in the demand for beef products, however cattle farms are unable to raise cattle fast enough to meet this demand. Does this mean people will start seeking other meats (i.e chicken/fish) for protien? International as well as Domestic demand will be negatively impacted by increase in unmet demands and increase in beef price. However, their unmet demands may cause people to use other substitutes, which in turn may give the cattle industry some time to catch up.
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