Everyone has seen the rancher who gets into tough financial times and has to sell some cows. Then, as calf numbers and revenues decline, it seemingly becomes a spiral that can’t be stopped. As an industry, we’ve been doing something akin to that.
The cowherd is the factory. Certainly, fed-cattle numbers aren’t showing the decline in numbers that one might suspect, nor is tonnage down significantly. But that’s somewhat misleading, as fed-steer numbers are down, but heifer numbers are up significantly.
We aren’t keeping replacements and we’re liquidating cows. All one has to do is look at some of the graphs tracking cow numbers to understand just how prolonged and significant this liquidation phase has been.
Certainly, the longest liquidation phase in history is explainable with the loss of export markets due to BSE; and then there’s drought to consider as well. Of course, ethanol subsidies created a situation where we needed to shrink the size of our industry fairly significantly.
With all the disruptions, it may just be taking us longer than usual to find an equilibrium level through the rationalizing of supply and demand. Still, it is impossible to get around the fact that consumption on a per-capita basis is continuing to erode, our share of the global marketplace has eroded, and the liquidation phase continues.
The price outlook for cattle is tremendous going forward, with stable-to-improving demand projected, as well as tighter supplies. But the reality is that we need to get focused on the right variables in our industry. Getting a slightly bigger piece of the pie isn’t productive if the size of the pie is shrinking. The good news is that supplies are going to shrink relatively quickly.
-- Troy Marshall