September 20, 2011

 

 

Upward pressure on meat prices is expected with US ranchers decreasing their herds which could cut beef supplies in coming months.

 

Ranchers have sold tens of thousands of heifers because of high feed costs and the drought in the Great Plains.

 

Typically, they would hold on to heifers--instead of sending them to feedlots to get fattened --in order to breed a new generation of cattle. While "cow" is the word generally used to describe these bovines, in industry parlance it specifically refers to a female that has already given birth. Heifers have not.

 

According to US data, last year, US cattle producers have sold off about one in every 20 heifers tagged for reproduction, shrinking the number of females for breeding by 5%.

 

"We're liquidating the future," said David C. Nelson, a global strategist at Rabobank, a lender and investment banker to many of the world's biggest food companies. "The cow herd is our factory, and we're sending it to the slaughterhouse."

 

In drought-singed western Oklahoma, cattle rancher Jack Brown said he has cut the number of cows he keeps for breeding in half. The 75-year-old cattleman will have fewer head to sell next year, but that also means fewer mouths needing expensive hay and scarce water.

 

Live cattle prices remain near all-time highs as exports climb and domestic beef demand remains resilient. Prices pulled back over the summer as ranchers started to shrink their herds, increasing near-term beef supplies. Analysts say that, going into next year, cattle prices could set new records as the flood of supplies dries up and ranchers are left with fewer animals to breed.

 

Live cattle for April 2012 delivery closed Friday at US$1.256 a pound at the Chicago Mercantile Exchange. That's 6% above the October contract, which finished 0.4 cent lower at US$1.185. The price difference indicates that market participants believe prices will rise this spring.

 

Government forecasters expect beef production to fall by 4.5% next year. Lower supplies are expected to boost the price US consumers pay at supermarkets and restaurants. Analysts say how much prices climb will in part depend on whether diners eat more pork, chicken or seafood, which would curb beef demand.

 

The culling of heifers is part of a broader move by ranchers to move a massive number of cattle off dried-up pastures.

 

So far this year, the US beef industry has slaughtered 7.6% of its total herd, the largest year-to-date liquidation since the US government began collecting data in 1986.

 

Because of a mix of economics and biology, rebuilding what's essentially the start of the supply chain for steaks and roasts could take years.

 

Thousands of small, cow-calf producers supply young cattle to large-scale operations that fatten, slaughter and process the animals. This first step is unique to the beef industry because cattle require grazing land, which doesn't lend itself to large-scale operators. The pork and chicken industries, by contrast, thrive off economies of scale.

 

Many of the young cattle in the US are raised by ranchers such as Jim Parks in central Oklahoma. He manages 90 cattle, but he also is a full-time plumber.

 

"There are just very few people who make a living raising cattle," he said. Economists estimate a rancher needs about 300 heads to go from a part-time to full-time operation.

 

Many ranchers don't have the capital to increase production by buying heifers destined for slaughter. Instead, to rebuild supplies they'll breed the animals they still own and slowly increase the number of heifers.

 

This process takes far longer for cattle than other kinds of farm animals. A pregnancy lasts 10 months and produces only a single calve. A sow, or female hog, will give birth every four-and-a-half months and produce on average ten piglets each time. Hens, or female chickens, are even faster.

 

The Texas and Southwestern Cattle Raisers Association in a recent survey of more than 15,000 ranchers and cattle raisers found 84% have cut their herds this year. Still, the trade group expects few ranchers to completely exit the industry even after facing such a punishing drought.