As consumers grapple with high beef prices, farmers, facing worsening drought and high feed costs are reducing their cattle herds. The problem is this – what’s happening now will plaque consumers for years to come, say economists.
The decline in cattle numbers, combined with stiff costs for other production expenses, illustrate why a recent fall in grain prices to levels not seen since Russia’s invasion of the major corn and wheat exporter Ukraine may not immediately translate into lower food prices at the grocery store.
It is common sense that lower feed prices translate to lower beef prices and that is the way it is supposed to work. But meat companies like Tyson Foods Inc, which reported weaker-than-expected earnings on Monday, must pay top dollar for animals when there are fewer to slaughter. Processors are also paying more for labor, fuel, and other items.
“There’s really a lot of distance between the price of those grains and the price of those products at the meat counter,” said Bernt Nelson, an economist at the American Farm Bureau Federation.
According to Reuters, corn futures prices have dropped 26 percent since hitting a 10-year high in April after the Ukraine war sparked worries about global supplies. Prices are still up 9 percent from a year ago at about $6 per bushel.
This lower price should help livestock producers, however, farmers have already begun reducing the nation’s livestock herd by 2 percent from July 1 a year ago, making it the lowest level for that date in about seven years.
Producers will likely liquidate even more cattle due to drought, said Shane Miller, Tyson Foods’ president of fresh meats, on a conference call following the quarterly results, according to the Wall Street Journal.
Tyson Chief Executive Donnie King projected prices for cattle and beef will rise moving into 2023 and 2024.
The USDA has released its mid-year cattle report, and the July 1 numbers spell a downward trend. All cattle inventory is down a full 2 percent, with 98.8 million head of cattle and calves on U.S. farms.
Why are numbers decreasing? Drought is likely a factor as producers liquidate herds in states hardest hit. Additionally, slaughter numbers are up 14.5 percent to date as liquidations continue. In total, CattleFax predicts a downward spiral of 5 percent in 2023.
