By Patrick Bray, Executive Director of Arizona Cattle Growers’ Association and
Lauren Scheller, Director of Consumer Marketing and Public Relations of the Arizona Beef Council
Editors Note: This article originally appeared in the September issue of Arizona Agriculture
The economic collapse in 2008 caused a large drop in consumer spending which in turn affected the prices of calves, feeder cattle, cows and beef. The impact – a 12% drop in beef demand as people cooked lower valued beef cuts at home and ate at restaurants less – caused a 25% drop in cattle prices. Times were tough. But as we know – tough times don’t last but tough people do. Cattle producers are tough people.
Other factors compounded this reduction in beef and cattle prices. Prior to and during the economic collapse feed prices were at record levels. Non-cash market related commercial futures trading by hedge funds and sovereign investors, including China, and other market forces caused livestock feed prices to double. This “feed fiasco” is thought to have caused a loss of equity in the cattle business of $2 billion on an annual basis. For producers, higher cost of gains which resulted from higher feed costs lowered the value of feeder cattle, which in turn adversely affected the entire cattle complex and created a tough couple of years for cattle producers.
The industry is not out of the woods yet but beef demand and the cattle pricing structure have rebounded. “We are survivors; we have weathered bad markets before and we will weather them again,” says Arizona Cattle Feeders’ President, Larry McDonald of Yuma. “Our pencils are sharper and we have gotten better at limiting our risk. The fat cattle market is at $1 this week – let’s hope it can stay close to that for awhile.”
Since the bottom of consumer demand in late 2008, consumers’ beef demand has increased 6 to 8%. This in turn caused a corresponding improvement in cattle prices. Just last week [ending August 13th], finished cattle sold for $1 per pound and the industry is seeing improved calf prices for the first time in three years. Arizona Cattle Growers’ President, Steve Brophy said, “I don’t recall ever in my life a rainy season like we’ve had this year and good calf prices on top of that. Prices are rebounding right now, and the Good Lord knows we need them both.”
Part of the recent increase in beef and cattle prices is related to declining herd numbers in both Arizona and the U.S. While the short-term impacts of a declining herd are positive for producers, the long-term health of the cattle business is tied to reinvestment in the form of heifer and producing cow retention and that is the beef industry’s current challenge: How do we add to our industry’s capital base, get positive signals to bankers, and attract new and retain existing producers?
Contraction of the United States cow herd is not a new phenomenon. Cow numbers have decreased during 12 of the last 14 years. The calf crop this year was 35.4 million head, the smallest it’s been since 1950.
With declining numbers, most of the years of contraction have been profitable for the cow-calf producer. The industry, with a smaller base, has fewer cattle headed to market, a growing number of heifers going to feedlots (not returning to calf production) and retail prices seeming to stabilize while exports continue to grow. The rain, and therefore the feed, is better than it has been in a long time in most of Arizona but where are the cattle? Last year was particularly dry and most of the state saw a 70% loss in forage on the range. The Arizona Cattle Growers’ Association was able to get a drought declaration from the Governor for temporary relief but herd numbers were undoubtedly affected.
Thankfully this year’s precipitation made up for some of the forage losses in years past, but at present our industry does not have enough cattle to consume this resource. So for the time being in Arizona most of the range is as green as it has been in years. Calf prices are going up, demand is rebounding, and producers are in a much Calf prices are going up, demand is rebounding, and producers are in a much better frame of mind. The only question is: Are we going to rebuild our herds? And if so, how? But the good news remains – Beef is back!