From a cattleman's newsletter I get: "The fact that cattle prices are falling should not surprise us. We have been discussing the inevitability of this situation for the past two years. What is surprising, though, is the fact that cattle prices have fallen so far so soon. I did not expect to see price declines of this magnitude until we substantially increased beef production (supply) via herd expansion. It is very important to realize that most of the herd-expansion calves will not be born until this coming spring – and they won’t be put on the market until next fall at the earliest.
Any increase in beef supply that we have seen in recent months was the result of feeders feeding cattle to extremely heavy weights (1600+ pounds). While most believe this was the result of cheap corn and falling cattle prices, I believe it was the result of human stupidity. Most feedlots still have a backlog of overfed, extra-heavy cattle. As a result, the U.S. is importing lean beef (bull beef) from places like New Zealand to mix in with our huge mountains of beef fat.
Price is a factor of supply and demand. When demand is greater than supply, prices will increase – and when supply is greater than demand, prices will decrease. Since most of the herd-expansion calves have not yet been born, we should be able to determine that supply is not the problem. If supply is not the problem, then we must assume that demand is the problem. Unfortunately, most cattlemen are unwilling to recognize and consider the obvious.
Retail and consumer demand for beef has decreased significantly – simply because the price has been too high for too long. Retailers no longer feature beef because they have been losing money on beef. Although consumers still prefer beef to other protein sources, they can no longer afford to eat beef except on special occasions. As cattle prices and beef prices continue to fall, we will probably see a slight increase in retail and consumer demand – but I am afraid it may be too little too late to do much good.
In other words… the current market crash is not the result of too many cattle. It is the result of cattle prices escalating to a level that was neither justified nor sustainable – which caused beef to become too expensive compared to competing meats.
Too make matters worse, the export demand for our beef is almost nonexistent. Price is a factor – but the fact that the U.S. dollar is stronger than nearly all other world currencies is the biggest factor. For example, it will cost Canada $1,370 to purchase $1,000 worth of U.S. beef. I have reason to believe the U.S. dollar will remain strong for an extended period of time. This will keep beef exports at an extremely low level.
Several ag economists expect cattle prices will fall to 50% of the highs we saw in the last quarter of 2014. When I consider that most of the herd-expansion calves have not yet been born, I am inclined to I think prices could fall substantially more than 50%. Suffice it to say, that will be devastating to most status quo cow-calf producers."
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