Beef cattle production decline likely to boost prices at the supermarket

Drought conditions in Iowa, other key cattle producing states tightens supply

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The recent decline in beef cattle production likely will continue this year and next, leading to higher prices at the meat counter, according to a cattle market expert at Iowa State University.

Lee Schulz, an ISU Extension and Outreach livestock specialist and assistant professor of economics, said two years of cattle herd liquidation — brought about by drought conditions in Iowa and other key cattle producing states — have put the industry in an even tighter supply situation.

Commercial beef cattle slaughter this year could lag between behind behind last year’s slaughter numbers — by 4 percent and 6 percent — Schulz said. And the biological realities of raising cattle virtually guarantee the trend of declining supplies to continue in 2014.

"We know how small the herd is nationally and, because it takes considerable time to bring a heifer calf into the breeding herd, it would take some time before producers could even begin to grow their herds," Schulz said. "Even if the right profitability incentives are in place for producers to begin expanding, you probably wouldn’t see overall growth until 2015."

The calf crop of 2012 totaled roughly 34.5 million head. If predictions for a 2 percent to 4 percent decline hold true, Schulz believes 2013 could produce the smallest U.S. calf crop since 1942.

What is unclear is the persistence of the drought that slashed hay and forage crops and drove up feed prices in 2012.  Continued drought would moderate the short-run effect of tight supplies by provoking more beef cattle herd liquidation and postponing heifer retention.

If drought conditions improve, herd inventories would start to stabilize and some heifer retention may begin in 2013.

"The weather will be one of the big stories for 2013," Schulz said. "Will there be adequate moisture?"

While there is agreement about declining beef production in 2013 and 2014, consumer demand is less certain. Schulz said retail beef prices at the supermarket could shoot to record highs as per capita supplies are reduced to historically low levels.

Another factor influencing beef cattle producers is record prices for corn and soybeans, which has driven up feed costs.

High corn prices won’t last forever, Schulz said. And when feed prices become more manageable for cattle producers, the prospects for expansion in beef production will become greater, he said.

The price of lean ground beef rose 22 cents from November 2011 to November 2012, according to the U.S. Bureau of Labor Statistics.

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