What is in this article?:
- As The U.S. Beef Industry Shrinks, The Consuming Public Grows
- Growing in a smaller industry
The beef industry’s size and the domestic and global populations continue in opposite directions.
This is the final installment in a year-long series on beef industry structure. Read the complete series here.
Stagnant corn demand and cheap corn prices begat modern beef production. The need for quality protein to feed a growing domestic population blown increasingly westward by the Depression and Dust Bowl years also played a hand in the evolution.
Today, increasing feed costs due to increasing corn demand — both natural and artificial — are destroying a least some of beef’s supply chain, even as the population continues to grow.
That’s the simplest way to sum up the forces that built the national beef cowherd to a peak of 46.9 million head in 1975, and then systematically chipped it down to today’s 29.3 million head (as of Jan. 1, 2013). That’s 37% fewer head in almost four decades.
Such an explanation is oversimplified, of course. But economics ultimately go a long way in describing the size and shape of the current beef industry.
It is economics that make chiseling a profit from cows so difficult.
“No one can start a ranch business with ranch earnings and expect to earn $60,000 before self-employed and income taxes,” said James McGrann, a noted agricultural economist, a couple of years ago. “With a 2% return on investment in ranching, it would require $3 million in equity. Assets earning 2% can service only limited debt. The cow-calf sector is an investment business and return on investment is what attracts capital for growth. In reality, less than 4% of the beef cow-calf operations make their sole living from the cow-calf enterprise.”
Economics — high input costs — and historic cattle feeding losses on a cash basis continue to hamstring cattle feeders. Most recently, these economics appear to have spawned some reverse migration of the sector (or at least the cattle) back to the Corn Belt.
High input costs relative to short cattle numbers and lackluster demand continue to pressure beef packers. This January, Cargill idled its facility at Plainview, TX. It boasted a 2,400-head daily capacity.
“The U.S. cattle herd is at its lowest level since 1952,” John Keating, Cargill Beef president, explained at the time. “Increased feed costs resulting from the prolonged drought, combined with herd liquidations by cattle ranchers, are severely and adversely contributing to the challenging business conditions we face as an industry.”
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Presumably, economics also partly explain the decline in quantity of beef demanded by consumers over time.
The U.S. population has increased about 48% since 1975; the population totaled 314 million in 2012. But beef production remained fairly flat during that span. It was technology and management that enabled the industry to provide a similar level of production with significantly fewer cows.
Demand itself has proven extraordinarily resilient, but the sheer price of beef appears to be altering consumer habits, pushing some to lower-value beef, and others out of the market altogether.
As it is, ground beef accounts for about half of all beef sold at retail. And about half of domestic consumption occurs through retail, with the other half moving through food service.