Input cost inflation causing major structural shifts in the beef industry.
Input cost inflation at all levels of the beef industry (cow-calf, feedlot, packing, retail and food service) is beginning to have long-term consequences for industry participants. Any input with an energy price component (e.g. herbicides, fertilizer, transportation) has experienced price increases over the last five to seven years. A federal government policy which directly linked the cost of corn to the volatility in the price of crude oil is only one of many drivers. At the same time, other costs, such as labor, have also increased.
Over the short term, the industry has responded by cutting expenses in other areas where possible, increasing cow and heifer slaughter, and passing along price increases in sectors of the industry wherever possible. However, over the long term, there are a number of shifts occurring which will spell major changes for the entire industry.
The most dramatic effect observed so far has been the steady decline in beef cow numbers in spite of relatively good prices for feeder cattle. From 2006-2011, the number of beef cows in the U.S. dropped by approximately 7%. However, the steepest decline in cow numbers occurred in the Midwest (Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio and Wisconsin) where cow numbers are down approximately 12.5% in the same time period.
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