Cattlemen's Numbers Problem
Overproduction will continue during the next two years, meaning low prices for consumers, low returns for producers
by Ken Krizner, senior editor
One attendee of the National Cattlemen's Association's convention approached country music star Garth Brooks and asked him how many albums he has sold.
Brooks, who was making an appearance at the convention in Nashville, Tenn.-the country music capital of the world-was only too happy to tell her that the number easily topped 5 million.
But it wasn't the number of Brooks' albums that most attendees were interested in. The numbers that garnered most of the attention during the four-day convention in January focused on cattle inventory and how it relates to the price cattlemen receive for their animals.
After a year in which many cattlemen lost money because of falling cattle prices, the hope was that they would hear some soothing news about 1995.
This is what they heard: There will be more increases in beef production for at least the next three years, and beef will compete against increasing supplies of pork and poultry. The average per capita meat supplies will continue to reach new highs.
But producers will continue to see lower prices for their animals because of overproduction.
Cattle-Fax estimates that 1995 numbers will mirror 1994 when half of the cow-calf operators were at a break-even or loss level, and that subsequent years may see that figure rise.
Some numbers to ponder: Cattle inventory indicates that the total herd expanded by 2 percent in 1994 to 103.3 million head, according to USDA. Beef cow numbers increased 4 percent in 1994, which means an increase in the calf crop and future supplies of fed cattle.
When increases in slaughter weights and slaughter numbers are taken into account, beef production rose by almost 6 percent to more than 24 billion pounds in 1994. It's the highest level of beef production in nearly a decade.
Average weights have declined somewhat, but total production in 1995 should top 1994 levels by an estimated 1 percent to 2 percent, with much of the increase occurring in the last half of the year, according to Tom Brink of Cattle-Fax.
What it means is beef supplies will be ample through at least 1997.
"The industry is on the front end of expansion," Brink noted.
It means the average wholesale price of beef will remain strong for marketers.
"Retailers and purveyors will be able to feature and promote beef," noted Manly Molpus, president of the Grocery Manufacturers Association and former AMI president. "Beef is in a strong position in the marketplace."
But Molpus pointed out that stiff competition from pork and poultry processors for consumer dollars will increase.
Pork production rose in 1994 and will rise again in 1995, and poultry production is projected to rise by 5 percent in 1995, indicated Brett Fox of Cattle-Fax.
The large supplies will eventually result in lower prices, which will lead to lower production, Brink added.
"We are slowing down [beef production]," he added. "But it won't show up in prices for several years. Right now, supplies are large and the beneficiaries are meat marketers and consumers."
Attention shoppers
Molpus said that more than half of beef sold at retail comes from various types of sales. Favorable wholesale prices, along with beef's strong appeal to consumers, meant that price-featuring was used extensively in 1994. Retailers will have more opportunities for beef-featuring in 1995.
Brink noted that after declining seasonally, beef production will increase again by summer. Because price is inversely related to production, consumers will see lower beef prices.
The lower price trend will continue through 1997 because the cyclical herd expansion is not expected to end until 1997, pointed out Chuck Lambert, NCA staff economist.
While the industry sees the typical cyclical swings in supplies and prices, increases in cattle numbers all but assure that beef production will rise in 1995. However, so will pork and poultry.
But beef marketers can expect continuing opportunities for strong beef merchandising through 1997. This will lead to an average increase of seven pounds (from 212 million pounds to 219 million pounds) in the average per capita supplies of red meat and poultry this year, according to USDA figures.
Brink noted that while those numbers sound pleasing, the fact is the next three years will be difficult on cattle producers because of overproduction. Yearling and calf prices are $8 to $10 per hundredweight less than a year ago and are expected to be even lower in the coming months.
While processors and consumers might like overproduction, when it comes to numbers, producers are not hearing what they want to hear.