Beef cattle industry changing due to economy

The beef cattle industry is busy talking about what to do next as markets take away value from feeder cattle currently being held to higher weights or until markets turn around. Our sunk costs, those expenses that have already been fixed are at record high levels but some bright spots do exist.

Grain has fallen by as much as half from earlier season highs, accompanied by similar declines in diesel. Good news also for farmers is the decline in fertilizer prices, offering those who need nutrients a chance to get in for less.

Nationally, our cow herd is shrinking and with fewer cows, we produce fewer calves that end up cutting beef supply if slaughter weights stay in line. However, the trend over time is for slaughter weights of feedlot cattle to climb particularly when feed is cheap. This compensates for some of the decrease in numbers by adding pounds to dressed carcasses. We know the economy is working against this high quality, high value beef product. Indeed, the lower quality, value products are seeing added demand. I read for example that fast food is doing well, probably at the expense of higher end establishments.

These can’t be new people eating out; they must be eating out at a different restaurant. You know as I do, that if you have sold any cull cows lately, their value is being set by this demand for affordable beef. Granted, even cull cows have lost value lately.

Still, retail food prices are climbing with additional costs being passed along down the line to you, the consumer. Too bad farmers are not in a position to do the same. They take what the market is offering, and right now, cattle feeders are passing on their losses to you, the farmer in the form of lower bids on your feeder cattle. So, the National Cattlemen’s Beef Association predicts this trend will continue until profits come back into the cattle feeding sector.

If grain stays down, this could be sooner than we expect. In fact, some industry predictions are for higher cattle prices in the second half of 2009. Right now fat cattle are in the mid-80’s and are expected to rise into the 90’s next year. Corn in Culpeper last week should have broken below $3.25 per bushel. Cheaper corn should help cattle prices but cattle have been falling along with grains in our new economy.

What’s next is the big question for most producers I speak with. They are trying to figure out their next move in these uncharted times. Granted the beef market is cyclical as industry experts point out, but the cycles have historically been driven by predictable factors. Less today is predictable as this economy is unlike any other.

What to do next depends on your situation. If you are a traditional beef producer with traditional expenses you may not know yet that you have a new carrying cost up around $500 per cow.

Extension keeps raising estimates and lately I have been hearing $450 to $500 per head. Bill McKinnon with the Virginia Cattleman’s Association put a bull’s eye on the 500 figure in his latest article. Cow carrying cost is in effect the cost of producing each calf. With five weight calves at $1.05 you are around break even. We have to sell more pounds and gross more money if our costs are going to stay high.

If we chase higher weights by adding costs we may not be gaining economic ground. I heard from a producer who said he was leaving his calves on the cows longer so he did not have to feed the weaned calves as long to reach market weight. This should cut feed costs for the stocker phase but with creep feed being used while the calves are still on the cows, potential margins are lost. We do what we know and what we know is what we did last. Try something different and see how it works. For example, if it costs you $1.36 per day to keep a cow, try an approach that only costs $1 per day and save $131 per head. Start with your biggest expense first. Leave health and breeding costs alone.

Carl C. Stafford is the agricultural extension agent for Culpeper County. E-mail cstafford@vt.edu.