Record High Beef Prices in the US Fuel Concerns over Drought Impact on Cattle Industry
Beef prices in the United States have surged to unprecedented levels, raising concerns about the impact of droughts on the cattle industry. The southern and western regions of the country have been grappling with drought conditions, leading to higher feed costs and a reduction in the national cattle herd size, which is now at its lowest in 61 years.
Data from the US Department of Agriculture (USDA) reveals that the average price of beef in US shops and supermarkets has reached about $8 per pound, surpassing the previous high of $7.90 observed during the pandemic. Meanwhile, live cattle prices in Chicago are nearing a record high at $1.79 per pound, compared to $1.50 at the same time last year.
However, ranchers whose livelihoods would typically benefit from record prices are instead deeply concerned that the soaring prices are symptomatic of a significant crisis – years of drought and low rainfall in prime cattle-raising areas that have transformed once fertile pastures into arid wastelands.
Last year, scientists warned that the western US was experiencing the most severe dry spell in 1,200 years. As of October 31, over a third of the lower forty-eight states remained in drought, according to the US Drought Monitor.
Amelia Kent, a local rancher in Louisiana, highlighted the environmental impact of the drought, stating, This drought is an environmental event having a significant impact on the national herd. You’re seeing cattle all being sold off heavily… and my immediate concern is what does our region and the country’s cattle industry look like six months from now? And 12 months from now, what do our markets look like?
Ranchers are grappling with the effects of reduced rainfall as cows struggle to fatten on scarce resources, often supplemented with hay or other feeds. However, years of drought have adversely affected the growth of essential foodstuffs for cattle. The USDA reports that hay storage levels in the US, as of December 2022, hit their lowest level since 1954, with only 71.9 million tons available domestically.
Due to insufficiently fattened cows, farmers are now faced with the added burden of transporting hay from more distant sources or sending their cattle to feedlots earlier than usual. However, the additional cost of feed has been further compounded by soaring global prices of grains like soy, corn, and wheat, primarily due to geopolitical tensions such as Russia’s invasion of Ukraine last year.
Many ranchers fear their herds have become unmanageably large as a result of the droughts and diminishing pastures. In recent years, cattle-rearing states such as Kansas and Texas have witnessed dramatic reductions in herd sizes, according to Bill Lapp, president of Advanced Economic Solutions, a food economics consulting firm.
The situation is no different in Louisiana, where livestock auctions are selling twice the usual number of cattle. Kent explained, A lot of our neighbors are selling… The cattle values in general are worth more than they’ve ever been worth before. And quite frankly they’re worth more than what we’re having to pay for hay. This reality forces many ranchers to choose between selling their cattle or incurring the high costs of feeding them.
Analysts and ranchers alike are concerned that the ongoing droughts and declining herd sizes could have long-term implications for the US market. Adam Speck, senior analyst at commodity analytics firm Gro Intelligence, predicts that farms in the north, with better access to pastures, will benefit while businesses in the south contract. In five years, we will absolutely see a different distribution of cattle in the US, he remarked.
The beef cycle, characterized by a decline in the national cattle herd every eight to 12 years, contributes to the evolving dynamics. Ranchers reduce their herd size by culling heifers during periods of low calf prices and abundant supply. Eventually, the smaller herd size drives prices back up, leading ranchers to retain heifers for breeding and expand their herds. At the beginning of this year, the US government reported the lowest number of beef cows in the country since 1962, with a total of 28.9 million.
When margins are good, heifers are retained and they have another calf, Lapp explained. But when times are tough, that heifer goes to a feedlot. Lately, a very large share of what’s been going to the feedlot is heifers.
According to Arlan Suderman, chief commodities economist at broker StoneX, beef production has declined 5.2% year-on-year. Suderman estimates that production will decrease another 7% next year. Rebuilding the herds poses a significant challenge, as heifers can only bear one calf per year, in contrast to hens that lay approximately 300 eggs annually and sows that can birth up to 25 piglets.
Lapp emphasized the time-consuming nature of cattle production, stating, From the day you and I decided the world needed more chicken to the day there was more chicken on people’s plates, that would be six months. For beef, it’s over two years. So when the industry has to adjust, it takes much longer.
Last month, USDA data revealed unexpectedly high cattle numbers, briefly causing futures prices on the Chicago Mercantile Exchange to drop. However, analysts attribute this increase to drought conditions in the western US, which forced lightweight cattle to be moved from pastures to feedlots ahead of schedule.
Adam Speck of Gro Intelligence questions the likelihood of cattle ranchers ramping up calf production, given the record-low hay stocks and unfavorable pasture conditions. He remarked, Going into this year, you have record low hay stocks and pasture conditions that are not improving. Do you think cattle ranchers decided to start producing more calves? No, absolutely not.
Interestingly, despite the soaring prices, US consumers have shown unwavering loyalty to beef. Arlan Suderman highlights the resilience of the US economy, saying, This is characteristic of the resilience we’re seeing in the US economy.
Nonetheless, ranchers like Amelia Kent worry that beef shortages may lead consumers to switch to alternative meats such as chicken or pork. They further fear that once prices fall again, consumers may not revert to their previous preferences as readily.
Kent states, It’s great to have these really high prices. But we need them to go down before we price ourselves out of the consumer market.
