Limited livestock for years to come

U.S. consumers, grappling with rising inflation, are facing further pain from higher beef prices as ranchers reduce their cattle herds due to drought and high feed costs, with the decision Livestock supplies will be limited for years, economists say.

The decline in cattle numbers, coupled with the high cost of other production costs, has caused the recent drop in grain prices to levels not seen since Russia’s invasion of Ukraine, a major exporter of corn and wheat.

No benefit from lower feed costs

Since feed is the single largest cost of raising beef cattle, falling grain prices often translate into falling meat prices. However, meat companies like Tyson Foods Inc, which reported weaker-than-expected profits on Monday, have to pay top prices for animals when they have less to slaughter. You also pay more for items. “There’s a huge gap between the price of this grain and the price of these products at the meat counter,” said Burnt Nelson, an economist at the Federation of American Farm Bureaus.

Prices have fallen 26% since hitting a 10-year high in April after sparking global supply concerns, at about $6 a bushel, down 9 from a year ago.

Lower prices are benefiting ranchers, but as of July 1, US government data showed that ranchers were already reducing the country’s cattle numbers year-on-year. It’s down about 2%, the lowest level in nearly seven years. He said more cows were likely to be culled.

Related article: Europe’s drought pushes meat & milk prices higher

Beef prices up 10% this year & more to come

CEO Donnie King predicts higher cattle and beef prices in 2023 and 2024. According to US government data, ground beef prices have already risen by 10% year-on-year.

Rising livestock costs are squeezing the profits of meat producers from rising beef prices. Tyson reported that its beef division’s adjusted operating margin declined to 10.2% in the April-June quarter from 12.7% in the previous quarter and 22.6% in the same period last year, while livestock costs were about 4% lower than the previous quarter. Profit margins will continue to decline from 5% to 7%, the company said.

Margins and meat supply will temporarily increase as ranchers send more animals to slaughter instead of keeping them for breeding, analysts say. But economists say consumers will end up with less beef, and once the liquidation stops, it takes nearly two years to raise a single cow.

“Prices will continue for some time,” said Glenn Brankow, a farmer who raises cattle and sheep in Wamego, Kansas. High prices for diesel fuel and feed continue to drive up production costs, said Brunkow, director of the Kansas Farm Bureau. He was recently paying about $475 per tonne for sheep feed made from corn and the like, which is a 40% increase from a year ago.

Consumers are switching to chicken

Some consumers are switching to chicken and cheaper beef to cut grocery costs, meatpacking executives said. Still, Tyson said he reported a 1.3% increase in sales volume in the most recent quarter as demand for beef remained strong and prices fell.”While we are seeing some easing in feed prices, this demand will keep [beef] prices at a standstill,” said Lee Schultz, an economist at Iowa State University.

Other protein options are also more expensive. Chicken prices rose 20.1% year-on-year in the most recent quarter, according to Tyson. Meanwhile, wholesale prices for white eggs hit a record high of $3.40 per dozen on July 21st. This is due to strong retail demand and an outbreak of bird flu that kills laying hens, said data firm Urner Barry.

Related article: UK consumers are buying 9.4% less meat

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Source: Reuters