Finding the good news
If you read the major newspapers and watch the television news, you would think the sky is falling.
I’m sure that in some people’s minds, it is. I wouldn’t think, however, that the U.S. or many of our foreign customers are going to shift away from a meat-based diet. Beef will continue to sell, albeit not at a price that will support $110 fed cattle like we were all expecting.
There are several elements that figure into fed cattle price discovery. Hide and offal values have seen dramatic declines in the past few weeks. Many of us seldom think about it, especially when it is over $12. That price level means that 1,300-pound steers would garner an additional $156 per head. Today’s hide and offal value, the drop as it is known to many, is down to $6—that’s $78 per head on a fed steer, or $78 less that the packer can pay. The annual cattle inventory report for Jan. 1 is going to be a very interesting set of numbers.
I’ve heard market analysts estimate the total cattle inventory to be down 1-2 percent from a year ago. It would appear that our cattle cycle may have peaked two years ago. Beef cow numbers may be off more. There were 3.2 million beef cows slaughtered so far this year, which is 400,000 more than the same time a year ago. With slaughter cows selling in the mid to high $50s this past summer, it appeared cattlemen were very happy to thin down their cow herd and probably thin down the number of bulls they were willing to carry over. Most bull sales this fall have been much better than many expected and the bred heifer market is hanging in there pretty well on the reputation cattle. There have been many sales of high quality commercial bred heifers up to $1,600 a head. Judging by the market on bulls and bred stock, I’d have to say there is some optimism among cattlemen and they are, without question, looking at the long term value of their breeding operations. Quality cattle have, and always will, bring the top of the market. At the end of the day, that’s all a beef producer can ask for, the top of the market.
The irony is, we all have a different way of determining added value for cattle. For the cattle feeder, it’s how fast they can gain. For the cow/ calf man, it’s how many pounds they can wean. For the stocker operator, it’s how much they gain on grass, or whether they will get sick. For consumers, it’s flavor, juiciness and tenderness.
The Choice Select spread this last week was in the $10-11 area which shows us where the demand is from consumers. The volume production of Choice cattle has been as high as it has ever been. With the high price of feedstuffs, it was surprising that cattle feeders were producing that many, and doing it with five to seven fewer days on feed. But it’s not all the result of feeding. The efforts of cow/calf producers, both registered and commercial, in selecting genetics that can grow fast and grade have paid off in the past few years. U.S. cattle producers continue to produce those high quality cattle that will carry the beef business forward. Cow/calf producers are doing their job. Now it’s time for the marketing segments of the beef and cattle industry to find ways to get beef to consumers cheaper. Traditional retail marketing needs to change. It drives me nuts to go into a membership warehouse store like Costco or Sam’s Club and buy Choice strip steaks for $6.50 a pound, every day of the week. Compare that to the meat in our typical grocery store where the same cut of meat sells for $13 a pound, or perhaps $6 a pound on an advertised special. How can these two different retail outlets have such different operating costs? I know that this is an old argument, but not much has changed in beef marketing. The cattle and beef industry have done their job producing high quality meat, but there is more to do. It’s time for our retail partners to let the industry help them sell more volume for less money, all the while maintaining a respectable margin on the product. Perhaps the beef and cattle industry needs to lead our own way out of this price funk we’re in. — PETE CROW