FOR
IMMEDIATE RELEASE
Jan. 16,
2012
For more
information contact:
Meghan
Blythe, Certified Angus Beef LLC (CAB) Supply Development Assistant, at 785-539-0123.
Photo
available: http://www.cabpartners.com/news/photos/Brown_Scott.jpg
Excel
file for graphs, or other questions email: ssuther@certifiedangusbeef.com
6 Million More Cattle?
Better
beef could mean 10% hike in demand, cattle on farms
Supply and demand may seem like just concepts from a dusty
book. But in today’s cattle market, those fundamentals govern profit and loss,
and point toward the future.
“Regardless of the commodity we talk about, the demand for
it is going to determine long run supply,” says livestock economist Scott
Brown,
Amid a challenging global economy in the last five years,
supply and demand highlighted differences within the beef category from the top
to low end. Demand for high-quality beef increased more, even as all beef
prices rose in response to dwindling supplies. Production input costs continued
up, too, but cattle prices climbed to cover costs for most
ranchers.
“If you would have asked any economist three or four years
ago what $7 or $8 corn would have done to this industry, we would have said
there wouldn’t have been one,” says Brown. “Well, we are learning that we can
feed corn at those prices, but it takes much higher fed-cattle prices than we
would have ever thought. So we are seeing the adjustment.”
It’s another example of the fundamentals at work. The
squeeze between costs and cattle prices put enough strain on producers over
time that many of them reduced their herds or went out of business, steadily
reducing the calf supply. So many hard decisions to give up the ranching life
eventually pulled prices up for survivors in the industry.
There could be a better way. Brown says a focus on higher
quality can make a difference, but it will take time.
“If we all of a sudden provide this better product to
consumers, who all the sudden decide, hey, this is a better eating experience,
then all of a sudden we shift demand back towards beef,” he muses. Of course,
not all of those things can happen “all of a sudden,” but to the extent that
they do happen, “then the possibilities are really very large.”
Producing cattle that grade at least USDA Choice is another
way to offset some of the high input costs and reduce the risks that tend to
drive operators out of business.
“It’s the good news story,” Brown says. “If we could
actually grow demand, then we’d have a different way out of the very tough,
high-feed-cost environment we’re in today.”
High-quality beef demand’s rise in the recent economic
recession suggests a strategy.
“Being able to supply a product that isn’t as sensitive to
economic changes is one way to reduce risk to producers,” he says. “When the
Choice/Select spread narrowed substantially, we saw the Prime/Choice spread
stay relatively wide.”
Apparently, the higher the quality beef produced,
the brighter ranchers’ future.
“We look at Certified Angus Beef ® and
Prime and the very highest end of that quality spectrum, and certainly demand
there didn’t seem to lag like it did with some lower quality product,” Brown
says.
The cattle cycle still functions in that declining cow
numbers bring higher cattle prices, which provide incentive to expand cowherds.
However, if producers shrug off demand for high-quality beef and stick with
commodity goals, that recovery may only bring the herd back from 30 million
next year to 31.7 million head by 2017. But there could be millions more,
perhaps 33.8 million beef cows by 2018, if ranchers rebuild with cattle that
produce beef for the high-quality markets.
Brown says, “Providing consumers a product they are demanding,
is going to give [producers] a chance to expand the herd that otherwise
wouldn’t have been there.”
That approach could mean “a 10% increase in overall demand
for beef,” he says, noting that economic models suggest that translates into “a
long-term expansion of roughly 6 million head in cattle inventories.”
To summarize without overstating, Brown simply concludes,
“It is not insignificant, targeting a beef product that better meets consumer
demand today.”
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