Another of Dad’s favorites sayings was “There’s always three sides to every story. Your side, my side, and what actually happened.” I can’t think of a better way to describe what”s going on with beef prices, and there’s way more than just three sides to this story.
If you listen to the Newsies, it’s all about the drought and that has caused a shortage of cattle. Well, there’s no doubt that the drought conditions in some parts of the U.S. have contributed to a reduction in cattle numbers, but cattle numbers had already started to decline long before the current drought conditions.
There are other factors at play here that are far more significant. A huge one is that those of us in the ranch business are gettin’ older, with the average age of ranch owner/operators pushing 60. Many of us are already well past that point. Recreational land purchases have driven up the cost of land and death taxes make it hard for the younger generation to take over the family ranch. And then there’s the earning potential, or should I say, lack thereof. Fifteen years ago 26 calves would buy a new pickup. Now it would take at least 60. The result is there is a lot fewer folks raising cattle, and the national herd is now at 1952 levels. Ranching is a wonderful lifestyle, but not something you engage in to earn big bucks.
Of course, there’s more to this side of the story. Although the number of cattle is way down, the slaughter weight of cattle is twice what it was even back in the 1960's. So only looking at the number of cattle doesn’t present an accurate picture. If you look at the number of pounds produced, is there still a shortage? Yes, there is. We have lost a lot of ranchers and their production. But the actual shortage is really only about 5% (Well, I’ve seen statistics that vary from 3.8% to 9% depending on who’s trying to make a point to whom.)
Here’s another side to the story. We export a huge amount of American Beef. With the U.S. dollar so weak against other currencies, the best beef in the world (ours) is now available in parts of the world where it was heretofore unaffordable. Countries that used to buy only organ meats, can now purchase steak, and once you’ve had steak, you’re not going back to tripe! In turn, the U.S. is importing cheap beef from South America and elsewhere. Look at the Country of Origin label!
Well, now we get around to what is actually happening. Over the last few months, we’ve seen a runup in beef prices of 12% to 20% again depending on whose numbers you use. Why is this? It’s mostly the result of speculation in the beef commodities market. Commodities speculators look for any excuse to create and then cash in on dramatic price fluctuations. In so many instances that excuse may have little basis in reality. We often see the same situation in the energy sector!
As in many others, the livestock industry does best when there is fiscal stability. Beef prices needed to go up some to keep pace with business input costs, but a 20% escalation over six months is only going to push consumers away from beef. And that side of the story is bad for all of us.