Posted on February 11, 2017
by Gilles Stockton
Grass Range, Montana January, 2017
By now, the disaster that is the cattle market has been factored into the coming year’s budget. For some it means the end of a dream to own a ranch, for the remaining it means a hard assessment about what will be affordable. The disaster is trickling down through the economy, to the businesses that supply goods and services to agriculture, and to the legislators and county commissioners, who are scrambling to fund schools, maintain roads, pay for social services, and law enforcement with less tax revenues. It is a depressing situation but there is a solution.
The solution, however, is only available if we focus clearly on what is wrong in the cattle market. First we must understand that a collapse of 45% to 50% in feeder calf prices cannot be justified by citing supply and demand. Healthy markets do not have these kinds of swings.
After years of decline to the lowest inventory ever, US cattle numbers were up by a modest 3% in 2016. In addition, the cattle in the feed yards may have been kept a little longer, increasing carcass weights by about 2%. Although these percentages were calculated from USDA sources, it should be understood that 2016 numbers are projections, and we will not know actual statistics for a year or so. (see Figures 1 & 4)
We should also not forget that in 2015 Congress rescinded Country of Origin Labeling (COOL), an action which put negative pressure on the cattle market. There is every indication that COOL was working to promote USA produced beef, which explains the insistence by packers to have it overturned.
On the positive side, however, beef and cattle imports decreased by about 12 percent, and exports increased by 9 percent. This does not mean that the trend is permeant. 2015 had the highest level of imports and lowest level of exports in recent years. The 2016 projections could be just a readjustment to a more normal level of imports and exports, with the long-term trend going for more imports and lower exports. (see Figures 2 & 3)
Also on the positive side we saw lower corn and soybean prices in 2016. With the cost of gain for cattle on feed decreasing, this should have resulted in upward pressure on the feeder calf market.
Yet instead of a modest re-adjustment of cattle prices, the market for cattle nosedived while at the retail level, consumers got only a minimum decrease in beef prices. MORE