Cheap beef in US to stay after a drop in wholesale prices

CATTLE ranchers who quickly expanded their herds after a prolonged Texas drought now have become their own worst enemies.

The industry-wide build-up was the fastest Shelby Horn, a fourth- generation cattleman with a family ranch in Nebraska, had seen in at least 30 years. The result: An explosion of beef on the market and a 30 per cent drop in wholesale prices from a record set in May 2015, when supplies were tight after the drought. And with many of the calves still a year or two from slaughter, the industry finds itself with no easy way to adjust.

This could mean beef prices will keep falling through 2019, according to John Nalivka, the president of Sterling Marketing Inc., an industry consulting firm.

“Most cow- calf guys, they’ll be in shock by the time they get their fall calves sold” because of the steep plunge in prices, said Shawn Walter, owner of Professional Cattle Consultants in Weatherford, Oklahoma, in a telephone interview. “That’s going to chill most people’s expansion plans.”

Beef production will rise 5.2 per cent this year and climb a further 3.4 per cent in 2017 to a five-year high, the US Department of Agriculture projects. Output is increasing as the cattle, hog and chicken industries expand simultaneously, leaving the nation set for a year of record meat production and declining prices. Consecutive years of bumper grain harvests have also sparked expansion as feed costs fell.

“The cattle business is a yearslong cycle,” said Jeff George, manager and owner at Finney County Feedyard near Garden City, Kansas. The impact of the latest expansion, though, “snuck up on a lot of us,” he said.

Beef supplies could keep climbing even as ranchers start to pull back their herds, cattlemen say. That’s because farmers will sell some of their heifers, young females who have not birthed a calf, to slaughterhouses. While that eventually means fewer calves and a smaller herd, it just creates more meat in the meantime.

Rancher Horn, who is 51, offers a case in point. As pasture conditions improved in 2014, the number of animals on his familyrun Nebraska ranch increased to 700 from as lows as 550 in 2009. When the drought ended, calves were still selling for as much as US$ 1,600 a head, according to Horn. Now, they go for as low as US$ 600, he said, adding that his family is considering lowering their cattle numbers to 600.

Bigger animal supplies are a boon to companies including Tyson Foods Inc., the largest US meat processor, which can pay less for its livestock supplies and spread the high cost of running their plants across more animals. Cargill, the US agricultural commodities giant, said last Tuesday it posted a 66 per cent jump in fiscal first- quarter profit as it benefited from higher cattle volumes at its slaughter houses. — WP-Bloomberg