The Cow Calf Problem
David Rogers piece in today’s Politico on the reasons for the current profitability of cattle ranching is must read for anyone wanting a better understanding of the economics of a central segment of our food system. Clocking in at over 2500 words, it’s a bit of an investment, but well worth the investment.
The basics? Beef prices are up, corn prices are down.
Beef prices are up because we have far few head of cattle than we did even a few years ago.
As of January 2014, the total inventory of cattle and calves in the U.S. had fallen to 87.7 million — the lowest since Harry Truman was president. More important, the number of all cows and heifers that have calved was just 38.3 million, the lowest since 1941 and Franklin D. Roosevelt.
That’s been driven by the ethanol boom, which displaced hay and pasture in the Midwest to make room for more corn and three years of drought in states like Texas and Oklahoma. Meanwhile, exports to Asia have doubled in recent years, creating competition with domestic demand. This is in part driven by demand from China where US beef imports are illegal, but pour in through Vietnam and Hong Kong in a barely secret black market.
With prices high, the industry is trying to respond by increasing herd sizes again. Here’s the catch, cows don’t have litters, they have one calf at a time. Too produce bigger herds, ranchers need to hang on to more cows to have more calves. The project of rebuilding a herd is a multi-year project. The challenge is compounded by the fact that cattle live outdoors in an uncontrolled environment. There’s a lot going on.
Among the many fun facts in the piece: 84 percent of the beef cows in America are still in herds of 500 head or fewer. There are some parts of Ag that Big just won’t go.