USDA’s cattle-inventory report showed the lowest cattle inventory since 1959. The U.S. cowherd has declined in 11 of the last 14 years, making this one of the longest single periods of liquidation in history.
Certainly, part of this decline is an efficiency issue; we’re producing more beef with fewer cows, and thus need fewer animals. Drought has also played a role through this timeframe.
Of course, the size of our cowherd is always driven by the dollars and cents; of late, the biggest cowherd-reduction driver has been the industry’s forced adaptation to an ethanol-subsidized world, which has driven input costs higher and reduced margins.
The U.S. beef cowherd came in at 31.38 million head, 1% lower than last year, and it isn’t done contracting yet. The number of replacement heifers fell to 5.436 million head, down 1.7%.
The recent cattle-on feed report was also bullish, coming in smaller than expectations. In fact, it is almost impossible to find a negative number on the supply side of things – numbers are tight and growing tighter. One exception to the trend is dairy, where replacement numbers are up by 2.5%.
Even Cattle-Fax’s long-term outlook at the National Cattlemen’s Beef Association convention was full of good news looking ahead; at least I get pretty excited when I hear talk of five-weight calves bringing $140 by 2014. The supply situation is sending clear messages; holding inventory will be a very good thing – if and when demand turns around.
Demand remains the wild card. If we simply were at the demand levels we enjoyed in 2007, fed cattle would have fetched $140/head more last year. The trouble with demand is that it’s in part tied to the overall global geopolitical environment and economy.
Exports, however, should be a bright spot, what with the declining value of the dollar. But, our inability to catch up with the world on traceability has kept us mired in an environment where we have been unable to regain pre-BSE levels of export business. There are some optimistic signs from a market-access point, but our brand equity has certainly eroded and we’re seeing fewer dollars available to promote our product at a time when it’s most needed.
Cost containment and efficiency gains may be critical to survival, but profitability and prosperity are linked to demand and value creation. Meanwhile, the industry continues to show an inability to proactively address these areas with the urgency and commitment that’s needed.
I’m not disparaging the heroic efforts being put forth with checkoff dollars, but fewer cows translates to fewer dollars, and inflation has eroded the buying power of our checkoff dollars to the point they’re simply insufficient to build beef demand at the levels we need to. At a time where our business environment is being assaulted politically, and our competitive position from a demand standpoint is eroding, the industry is seemingly headed more toward a commodity mindset than value creation.
Certainly, bull sale prices this spring indicate producers are more focused on value than ever before and they appear willing to pay for it. Individually, producers inherently understand that creating value and building demand are the keys to prosperity, but collective effort is needed to achieve those goals. It’s this concept of collectivism that’s created much of the problem. Until we address it, we’ll continue to see the size of our industry decrease.
Raising the checkoff and getting involved in the political process through your local, state and national organizations may make sense, but few are willing to address these challenges given the economic environment we find ourselves working in. The key will be individuals coming together and recognizing that building demand, and working to maintain and improve a business environment that is under attack are no longer worthy side issues; they are fundamental to our success.