What's happening to beef?

[grassfarmer]

Is anyone else interested in what is going on in the beef cattle sector just now? Are we all content to sit back and accept low returns again because we got our 2 years in 10 of high prices? I'm not - I'm mad at the current situation as the price collapse in cattle prices flies in the face of market fundamentals.
I posted a few weeks ago in the "Bluegrass Stockyards" thread about the packer manipulation of the cattle futures markets that seems to be allowing them to control the live cattle price through controlling the financing extended to feedlots.
As further proof that our cattle prices shouldn't be where they are take a look at these charts from StatsCan October 2016.





Look at the price spread between farmgate and retail price in graph 2 - went from $4/lb in 1995 to nearly $10/lb now - even at the widest point during BSE it was under $7/lb. How come everyone is asleep on this? why isn't it being raised by beef industry checkoff groups?

As cattle producers we are systematically being robbed of the value of the cattle. Anyone prepared to do anything about it?

[ajl]

The lights stay on at the supermarket due to margins made at the beef counter. This has been going on for some time and is true more than ever today. Many food items in the grocery store have been declining including most processed foods so have to make it up at the beef counter. Around here the effect has been to reduce beef consumption with it being replaced by pork, chicken, and lentils since beef is too expensive.

[Retired]

There are no free traders anymore , The BTOs have to hedge everything from money to feed to futures so they can get the money to run on, and if they can clear $5 to $10 per head on 1 or 200,000 head they are living fine,and the packers dont have to bid on any cattle as in essence they already own them. And with only 2 packers working where would we sell our fats as independents.
I dont supose there will ever come a time that we may get back to farming, instead of agri business,we lost the packing industry same as the CWB, so some can prosper at the expence of the majority.

[WiltonRanch]

Was at a bred sale today and support price on decent breds is around $2100. Cow calf guys must have some optimism left. But on $900 steers it doesn't work well for paying them off and making a living. Pays you to keep your own these days. Last time steers were at this level you could buy decent stuff for $1600. Once Christmas tax season is done reality will set in.

[poorboy]

Your chart really needs to compare competing meats to beef in the retail store. Doesn't really matter if there are a lot or few beef animals, if pork and chicken are way cheaper and money is tight you eat chicken. Demand is the ultimate driver of price, not supply.

[grassfarmer]

Your chart really needs to compare competing meats to beef in the retail store. Doesn't really matter if there are a lot or few beef animals, if pork and chicken are way cheaper and money is tight you eat chicken. Demand is the ultimate driver of price, not supply.

Why? dropping beef consumption has not led to this cattle price collapse. Indeed it was a remarkable feature of the recent beef price run up that it didn't strangle beef demand - it surprised both CDN and US commentators. Problem is not the high retail beef price it is the small and ever decreasing proportion of that $ which makes its way by to cattle producers.

[smcgrath76]

I see a couple of different issues in this post. One is profitability overall, two is concentration in the industry at higher levels, three is feedlot losses and fourth is inter-industry adversarial positions. Cow/Calf makes no money when feedlots do and feedlot profit is made on the buy. Add packer concentration and captive supply and you have a problem, but it actually pales in comparison to retail concentration.
I am not sure what the answer is. I don't think we are going back to smaller plants or producer initiatives and large scale lots/plants/retailers make it pretty difficult for a C/C producer to really get on board driving the value chain.
I saw an interesting chart this week derived from the WBDC heifer calculator. Some of the figures which I know some producers partook in had a 14 calf payback period for purchased bred heifers. We have seen some sales this last week or two around here average close to $2500 for bred heifers. Not sure that we don't shoot ourselves with our own math.

[Blaithin]

Small town butchers have been dwindling. They need to make a comeback.

Honestly I think there's more of a future in direct marketing. Consumers want to know where their food comes from, farmers want to cut out the middle men, feed grain prices are crap. What's stopping farmers from finishing their own and marketing them?

1. Buyers/abattoirs - so get those small town butcher numbers back up.

2. Well I own too many cattle to do that. - You have to build your market and customer base first so start by finishing a handful and work your way up. Not like anyone's ever going to jump in and find a market for hundreds of finished animals.

As another potential contributor to motivation to change - if the carbon tax does target herds larger than 150 head perhaps farmers should cut back herd size while chasing a more direct market.

Although it seems to be a bit of a back and forth to me. Beef is too expensive at the store, why aren't we as farmers getting more? Yet then you hear that farmers can raise and finish beef for that price?

One thing that I think is a big player right now is consumer demand. They want to know where it's coming from and they want it to have less crap in it. Feedlots rely on antibiotics, ionophores and feed supplements. They have to the way they're set up. The implants are just an extra $50. A smaller operation shouldn't need to rely on such additives and can supply a more transparent product. Instead of boycotting Earls and A&W and similar chains, work with them. There's the potential for beef right now.

Too many beef farmers would rather moan that nobody wants their product and they're being misaligned than try to work towards offering the product that's wanted. That's not how supply and demand works.

[Happytrails]

It the cattle cycle ... stupid. Cattle prices have been peaking mid decade for decades. The recent price run up probably went a year longer than most predicted. Anybody remember '74-'75?? We're destined to live with an exaggerated supply/demand equation. Increasing supply initially REDUCES supply and reducing supply initially INCREASES supply. So there you go. Keep your expenditures in balance with your income and enjoy your cows!

[WiltonRanch]

It the cattle cycle ... stupid. Cattle prices have been peaking mid decade for decades. The recent price run up probably went a year longer than most predicted. Anybody remember '74-'75?? We're destined to live with an exaggerated supply/demand equation. Increasing supply initially REDUCES supply and reducing supply initially INCREASES supply. So there you go. Keep your expenditures in balance with your income and enjoy your cows!

Exactly. The bred market hasn't figured out $900 steers yet. Maybe another poor turn and breds come down. When breds get cheap can be a signal the market is ready to turn. Right now not enough red ink has spilled to scare anyone. Heifer calves are dirt cheap relative to breds. Surely you keep your own and sell more culls cause they're still not terrible. Today I was at a bred sale and blacks too it on the chin while red x breds were a couple hundred more. Think guys are thinking they're going to push out bigger calves to beat the poor market. My theory.

[Happytrails]

I agree Wiltonranch. The bottom of the market may still be coming.

[grassfarmer]

It the cattle cycle ... stupid. Cattle prices have been peaking mid decade for decades. The recent price run up probably went a year longer than most predicted. Anybody remember '74-'75?? We're destined to live with an exaggerated supply/demand equation. Increasing supply initially REDUCES supply and reducing supply initially INCREASES supply. So there you go. Keep your expenditures in balance with your income and enjoy your cows!

That's the simple explanation - but is it true? I understand the cattle cycle and how increasing supply causes prices to fall. That's not really what's happened here though - are we to believe that in the US cattle numbers went from their lowest point since the 1950s to a high enough point to trigger a price collapse inside 18 months? Maybe with rabbits or pigs but cattle don't multiply that quickly. In Canada its hard to detect if there even was a measurable herd increase yet the price still fell dramatically.

This whole thing smells of manipulation to me - manipulation of futures markets to manipulate live cattle price and possibly manipulation of cattle inventory statistics to cover up the other manipulations.

[grassfarmer]

Much as I support direct marketing I don't think that's the solution. Like Sean says I don't think producer initiatives for alternate marketing systems are a likely solution either. I think there needs to be a proper fix of the existing system through enforcement of existing anti-competition regulations otherwise there risks being a forced vertical integration of the entire beef sector from pasture to plate.

[15444]

Haven't seen 5-weight $300 heifers and $400 steers yet this fall, so things are still looking pretty good.

#nooneowesyoualiving

If interest rates ever go up, then you'll see the slaughter line for producers pick up pace.

[smcgrath76]

Haven't seen 5-weight $300 heifers and $400 steers yet this fall, so things are still looking pretty good.

#nooneowesyoualiving

If interest rates ever go up, then you'll see the slaughter line for producers pick up pace.

It won't just be beef producers going down. There is a lot of leverage being used on the grain side right now. We often forget that the land won't go away. Most of it will be farmed, but may not be privately or Canadian owned at the end of the day.