Recession plays role in big drop in cattle prices

Written by ED MERRIMAN, Baker City Herald December 26, 2008 05:04 pm

rice for generic cattle dropped by 40 cents a pound since summer, before rebounding slightly.(Baker City herald/Kathy Orr)
rice for generic cattle dropped by 40 cents a pound since summer, before rebounding slightly.(Baker City herald/Kathy Orr)
Cattle prices received by ranchers in Baker County and across the West have plunged 40 cents a pound since July due in part to changes in Americans’ eating habits triggered by the national recession.

“The cattle industry is not immune to the economy. People are still eating a lot of meat, but they’re dining out less often, and at home they’re eating more ground beef and less rib steak,” said Bill Moore, who ranches in Baker County near Unity and is president of the Oregon Cattlemen’s Association.

This month, Baker City is losing one of its newer restaurants, the Fillin Station, due in part to a decline in people dining out.

Nationally, the Ruby Tuesday’s chain of steak houses announced it is closing 40 restaurants, and the Morton’s Steak House chain has shut down, said Ron Rowan, marketing manager for Beef Northwest feedlots headquartered in North Powder.  

Rowan said prices for generic cattle dropped from about $1.20 per pound in July to a low of 80 cents per pound a couple weeks ago, before edging back up to around 92 cents per pound on Monday.

For a typical 500-pound steer, ranchers who sold when the price hit rock bottom took a $200 per head price cut, which translates to a loss of $20,000 for every 100 head. Even at the current price of 92 cents a head, Rowan said the price is still down about $150 per head compared to July prices.

“I know some ranchers out there who are hanging their heads pretty good because they had to sell some cattle when the price was bad,” said Dan Forsea, president of the Baker County Livestock Association.

Even though prices for top quality alfalfa hay have dropped from earlier highs of $200 to $250 per ton to $150 to $180 per ton, Forsea said some ranchers had had to sell this fall, when cattle prices bottomed out, because they couldn’t afford to feed their calves over the winter.

 Forsea, a third-generation rancher in the Richland area, said due to record high feed costs this past summer, ranchers across the country have culled their cows and sold off some of their new crop of heifers as well as steer calves, resulting in one of the smallest nationwide cattle herds since the 1950s.

Historically, aside from periods when packers manipulated the marketplace, cattle prices have risen and fallen largely based on the ratio of cattle supply to consumer demand.

When the cattle herd exceeded demand for beef, prices dropped, and when the herd fell below demand, prices climbed.

That’s not the case this time around.

“It’s more of a mental thing,” Forsea said. People are worried about the economy so they’re cutting back on spending. They’re buying less steaks and more hamburger and pot roast.”

Rowan said the cattle price decline mainly hurt ranchers who sell cattle on the open market, not those who raise cattle under contract for branded beef programs such as Country Natural Beef or the Certified Angus program.

About 25 percent of the cattle fattened at Beef Northwest feedlots are for branded beef programs, compared to 75 percent sold on the open beef market, Rowan said.

Despite the drop in cattle prices, Rowan, Moore and Forsea said they’re optimistic about the future for American ranchers due to sound fundamentals in the cattle market.

“Looking around, I think the beef industry has a bright future,” Rowan said. “There’s a big demand for protein around the world. As the global economy recovers, people all over the world, and especially in emerging markets, will have money to spend, and they’ll pay for premium beef.”

He said cattlemen in Baker County and across the nation will benefit from that growing world demand for premium beef in the next few years.

“Here in Baker County we have the resources to produce the top quality product the people want,” Rowan said. “I think Baker County is in the top tier in terms of quality cattle.

“We have two of the top seedstock producers in the state and probably in the nation in Harrell Herefords and Thomas Angus,” Rowan said.

“This is cattle country. We have good grass, good water and good elevation change, so it is a good place to raise cattle in the summer and winter,” Rowan said.

The cold winters boost hay and other feed costs compared to warmer climates like Florida, Texas and California, but it also provides a purer environment for raising cattle with fewer pest and disease problems. Rowan said cold winters also tend to promote more marbling and muscle tone, which some say makes for a more flavorful beef.

“There’s an old cowboy saying that the further north you go, the better quality your cattle will be,” Rowan said.

Forsea said the stock market plunge also played a big role in driving down cattle prices on the futures market.

Rowan said the stock market collapse also drove prices for feed corn, wheat and other grain crops on the futures market.

“Currently, the price of feed corn is half what it was in July,” Rowan said.

He said the lower feed costs will improve the profit margins for feedlots, allowing them to pay ranchers a little more for their calves as consumer demand recuperates from the economic doldrums.

Moore said 6 percent to 7 percent of the cow herd in Oregon was sold this year, on top of a 20 percent sell-off last year

That, combined with an increase in the number of heifers entering feedlots, indicates Oregon’s cattle herd will shrink considerably more over the next year.

Other market factors also point to higher cattle prices in the near future, including the declining value of the dollar compared to foreign currencies, Moore said.

Rowan said cow-calf producers who can produce age verified calves documented to be under 23 months of age can also expect to be paid premiums for age verifiable cattle eligible for export to Japan and other lucrative export markets.

He said rising export demand, the decreased supply of finished cattle coming out of feedlots in the next several months and an excess capacity for feeding and packing beef in the U.S., all bode well for cow-calf producers in the future.