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Sep. 3, 2024
by Bernt Nelson, Economist, American Farm Bureau Federation USDA's Economic Research Service (ERS) reported record retail beef prices for the month of July, with the all fresh value of beef estimated at $8.15 per pound (Figure 1). This marks the first time in history the national average price for all fresh beef moved above $8. Consumers across the country are asking, "Why is beef so expensive?" The answer to this question has been several years in the making. This Market Intel will break down the events that have led to record beef prices in the United States and explain how farmers, despite these record prices at the grocery store, are more vulnerable now than ever. The Story - Drought, Inflation and Inventory Pasture conditions began to deteriorate across the United States in 2020. The La Niña-driven drought would press on for the next three years causing pasture conditions to deteriorate and sending prices for feed grains to record levels. At the same time, inflation began to rise, driving up costs for everyone in the United States, including farmers and ranchers. The combination of drought and high input costs compelled farmers to place a higher-than-normal percentage of female cattle on feed for slaughter, rather than keeping them for replacement breeding, resulting in increased short-term beef production but contraction in the cattle inventory. This contraction has led to the smallest cattle inventory in 73 years and a reduction in the U.S. beef supply. The cattle inventory takes more time to rebuild than other livestock inventories because it takes 18-24 months from a calf's birth until it is fed to slaughter weight and ready for market. For cow-calf operations, where farmers breed cattle and sell the calves, once a female calf is held back for breeding purposes - rather than sent for feeding and slaughter - it takes about a year before that cow produces a calf that is added to the cattle inventory. Fewer cattle on feed in the long run will result in more upward pressure on beef prices. Retail beef is already hitting record prices, but ranchers have not yet begun holding back females so retail beef prices are likely to climb higher. The Farmers' Perspective - Why We're Not Expanding According to USDA's 2022 Census of Agriculture, the average age of a farmer rose from 57.1 years old in 2017 to 58.5 years old in 2022. Put yourself in the shoes of the aging farmer or rancher. Prices are high enough to make money from sales. Expanding might require borrowing at the unusually high current interest rate and paying top dollar to buy any additional cattle. Selling cattle avoids these extra costs and time needed to pay off debt and gives the farmer a good price for his or her cattle. This makes selling some or all of the herd a tempting proposition. The same factors are also obstacles to new and beginning farmers. Livestock used to be a way for new and beginning farmers to get into farming. Rather than having to buy expensive equipment and land involved with crop production, a new farmer could start out with a few cows and limited resources and build their herd, purchasing additional resources over time as needed. My family's farm in North Dakota got its start in livestock this way. Two orphaned calves were purchased, bottle fed in a neighbor's barn and later sold. This was the first step in building our current livestock enterprise, but our expansion ultimately depended on buying cattle. A new farmer doing this today faces the high cost of buying cattle to start out, elevated supply costs and high interest rates for any borrowed money needed to supply working capital. This makes starting out and being profitable extremely difficult in the short run and is an obstacle to expanding in the long run. Conclusions The crux of this story is the U.S. cattle inventory has decreased to a seriously low level, but the market isn't providing incentives for farmers to grow the herd again, causing beef prices to rise to record levels. From a business standpoint it may not make a lot of sense to enter the cattle business or expand because, while the cash price for cattle is elevated, increased costs for supplies, along with market uncertainty, have become obstacles to profitability and it is uncertain whether the cattle prices two or three years out will reward this investment The U.S. is home to the most affordable food supply in the world , in part because of the risks that farmers and ranchers take to make it so, even when it won't necessarily pencil out. To read the entire article click here. Tweet |
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