Recent Beef Price Increase

Our recent beef price increase is due to world commodity prices. Many people would like to think that farms like ours are immune to industrial price fluctuations, but just like no one individual is an island, neither is any farm an island.

In 2013, the world inventory of beef cattle dipped below the number in 1950. Think about the world in 1950. China. India. Africa. At half the population and half the wealth, that was a different world. The beef cattle inventory has returned to that level, creating
an unprecedented shortage.

Right now, today, we would make more money selling our finished beeves to the industrial food system than direct marketing to our customer families. Think of that. The price spike in the 2 last years  has moved the value of a 1,000 pound steer from $900 to $2,000. Supermarket prices are creeping up, but the ones that are taking it on the chin are the feedlots and processors–those notorious middle men. For the last 2 years, many feedlots have been losing $200 per head, but each is hoping the next
guy will go out of business first. The deepest pockets will win. Shallow pockets will go out of business as the industry consolidates due to financial pressure.

We work closely with neighbors and buy cattle from them. These farmers and their families have no desire to take less for their calves than the market will bear. They’ve been waiting a long time to be in the driver’s seat like this. The result is that what we paid around $1200 for a year ago costs us $1600  and more now. That’s a minimum of $400 per beef more.

If an average carcass yields 350 to 400 pounds of usable product, that’s an average of $1 or more per pound increase just to stay even. But even that is not really even because the value has also risen on the pounds after calf weight–those other 500 pounds we’ll put on in the pasture. To really stay even, we need yet another $1 per pound increase. Why should we get less for our grass finished beef than the industry gets for hormone-drug-grain feedlot beef?

Why is the world inventory so low? I think three things have caused this perfect storm. First, some huge droughts have literally depopulated areas in the Dakotas and the southwest. Australia is in significant decline after a series of historic droughts. Many cows, the breeders (mamas) went into ground beef because farmers had no grass for them.

Second, the aging farmer is slowing down. With the average age of cattle owners now approaching 70 (average for all farmers is nearly 60) these farmers and ranchers aren’t willing to expand at any price. Rather than responding to price increases like normal, the tepid response indicates life cycle fatigue. Millions of acres of farm and ranch land have simply been abandoned in the last 15 years due to the aging out of livestock operators.

Third, huge areas of the world previously devoted to grass have been converted to crops for both people food and fuel production (biodiesel and alcohol). Argentina, bastion of pampas and grass production, is converting millions of acres to GMO corn and soybeans. Ditto for Uruguay and Paraguay, both historically significant contributors to the world’s beef supply.

This spring saw the first significant response to the high prices: farmers began retaining heifers to become mama cows and produce more calves. But that created the current firestorm because all of those heifers that would have gone to abattoirs and entered the beef trade have been kept alive. They’re all out walking around rather than being in tray packs at the supermarket. It appears that this extreme world wide shortage will last for at least three years. That’s how long it takes for a heifer to
breed, birth a calf, and for that calf to grow up to processing weight. It’s a long cycle.

We are responding like many other farmers–retaining heifers and working towards expanding our cow herd. That means we won’t have to buy as many calves, but it also means we won’t have as many to sell in the short term because our grass, rather than fattening finishing animals, will be carrying mama cows. We’re looking at our own shortage that is simply a microcosm of the bigger world issue. Just 20 years ago I remember buying 500 pound calves for $300. Today, those calves are bringing $1,200.