The U.S. cattle herd has shrunk for the fifth straight year to a 60-year low, a government report showed Jan. 27, as a devastating drought and record high feed costs hit production, which will likely mean even higher beef prices for consumers.
One of the worst droughts since the dust bowl days in the 1930s plagued the top cattle state of Texas for more than a year. In addition cattle producers there and in other states faced high feed costs as corn prices in June soared to a record of almost $8 per bushel.
Stiff competition with crop farmers for land also played a role in shrinking the herd.
The U.S. Agriculture Department report showed the cattle herd at 90.77 million head as of Jan. 1, down 2.07 per cent from a year earlier and the biggest percentage decline since 1989.
That also was a deeper cut than what analysts expected. A Reuters poll showed analysts, on average, expected 91.26 million head.
“The big drop in calves weighing under 500 lbs. and the big drop in cow population is going to give the report a generally bullish tone,” said analyst Dan Vaught of Vaught Futures Insight in Altus, Arkansas.
Fewer calves and breeding cows means fewer animals to rebuild the herd.
“I would say we should have two more years of smaller cattle inventories,” said Ron Plain, University of Missouri livestock economist.
Meat-packing companies are going to have to scramble for cattle.
Short slaughter supplies
“The first thing they should be shaking their heads about is there are not enough cattle to keep all the beef packers in the beef business,” Plain said of the meat companies.
Beef processors, on average, had losses of about $98 per head on Friday due to the high cost of cattle, according to Hedgersedge.com LLC, an agribusiness risk management and market research firm. That date indicates processors have been losing money since mid-September.
As a result processors are scaling back cattle slaughter. They also are passing the higher costs on to consumers, which could drive down demand for beef.
“When cattle prices shoot up you raise the price of your finished product. In doing so, you run the risk of people turning away from beef, and some of that has happened, at least domestically,” said a source at a meat packer.
“The consensus in the industry is that packers are losing money, and it’s going to take longer to pull out of this hole than most people thought. We’ve cut back some (slaughter), but not to the point of taking off days,” he added.
Beef prices at the retail level have surged, setting record highs for four straight months late last year and more increases are coming.
“Beef is going to get awfully pricy compared to the rest of the meats,” warned Plain.