American beef producers, beset by herd consolidation, export problems, ethanol production, shortages in feed and grassland, and other issues, are facing a new plateau of uncertainties, says a cattleman and agricultural appraiser from Hornitos, Calif.
Anthony J. “Tony” Toso offered an analysis of the beef industry during the spring outlook conference of the California Chapter of the American Society of Farm Managers and Rural Appraisers (ASFMRA) at Sacramento.
Toso, a director of Producers Livestock Marketing Association, one of the largest livestock marketing cooperatives in the western U.S., said the 800,000 beef producers across the U.S. generated $48.5 billion in cash receipts in 2005.
Consumer expenditures for beef, the nation's top source of protein, were expected to reach $72 billion in 2006. Retail price per pound averaged about $4 and is expected to be about $4.18 in 2007.
Against that backdrop, Toso said, drought in Kansas, Missouri, Oklahoma, and Texas in 2006 severely affected one-third of the U.S. herd of 97.1 million at the beginning of that year.
Those losses only fueled the continuing consolidation of herds, which numbered 1 million in 1986, but only 763,000 today. Although operations have shrunk 25 percent in 20 years, the herd is only 2.3 percent smaller than in 1986.
“More operations have greater numbers of cattle, and smaller producers are becoming smaller in number,” Toso said. “So we are seeing a consolidation into bigger operations, and in 2006, 15 percent of the nation's cow herd had in excess of 500 cows.”
Another powerful influence was the mad-cow disease issue in late 2003 that changed the beef industry and showed that beef is “a political football.”
“We were riding high on the fat cattle market at the time, and within a matter of hours things plummeted. Even though one-quarter of the U.S. export market value has been recovered since 2003, conservative estimates are that the U.S. industry lost more than $4 billion in export value.”
Noting that other trading nations have greater instances of the disease than the U.S., Toso said “beef is a victim of politics, and recapturing that market is tough right now. It's based more on politics than safety and scientific fact.”
Although American corn-fed beef still has superior quality to the competition, he said, the increased demand and the nearly doubling of prices of corn for ethanol use are impacting the price of cattle.
Seventy-five percent of beef cows, 75 percent of fed cattle, and 75 percent of corn production for ethanol are all in the Midwest.
As a result, producers are looking for larger cattle going into feedlots, so the stock will need less corn to reach finished weights, considering alternative feed, or putting more cattle on pasture.
“Ethanol is a new thing for the cattle industry to worry about,” Toso said.
Consequently, cost of grain, has shot up from around $50 per hundredweight during mid-2006 to a range of $70 to $80 this year. “So it's a new game — and, by the way, rising fuel prices haven't helped us either.”
The ASFMRA group also heard from Michael Marsh, chief executive officer, Western United Dairymen, who said California producers entered 2007 with higher milk prices but continued pressure on profitability.
“Beginning in 2006, corn prices shot up nearly 50 percent from levels just one year earlier. Given the continued expected demand for ethanol, and despite the expected record production in 2008, corn prices will retreat little.”
Marsh's Modesto-based organization is the largest dairy producer group in California and its members represent more than half the state's approximately 2,000 dairy families.
Those families provide products to a marketplace that “is becoming more global, more competitive, and more volatile.”
The California dairy industry generated about $4.5 billion in farm gate revenue in 2006 and an estimated $47 billion in economic activity within the state.
“Negative margins in 2006 and squeezed returns into 2007 have paved the way for slowed milk production growth,” he said. “USDA currently projects 2007 production to stay relatively static, with only a modest 1.3 percent increase in milk production due to a 27,000-head reduction in cow numbers and a 1.5 percent increase in milk per cow.”
However, Marsh said, excellent demand for dairy products is expected to continue in 2007 with commercial disappearance expected to surpass 2006 levels, even at higher dairy prices.
Demand on the international front is also anticipated during 2007. While flagging milk production in the European Union and New Zealand is expected to rebound, poor weather conditions are affecting production in Australia. Marsh said U.S. prices should remain competitive and exports strong.
“Given the expected strength in demand and milk production projections, 2007 producer all-milk prices are forecast by USDA to be approximately $2.45 per hundredweight above the averages of 2006.”
Environmental issues continue to dominate industry concerns. Marsh said an unsuccessful attempt by the San Joaquin Valley Air Pollution Control district to mandate methane digesters for all dairies in the valley would have cost the industry nearly $1.9 billion.
“We succeeded in convincing the district they needed to look at their methodology and they have backed off the mandate, at least for now.”
Marsh said 10 pilot methane digester projects, each aimed at reducing costs by offsetting as much as possible of the dairy's electrical power needs, have been installed with funding through Western United Resource Development, Inc. These generate an estimated 2.5 megawatts of electricity. Additional projects are being installed from Marin County to Imperial County.
However, there are impediments to the projects, and Marsh said the greatest is financial.
“Dairy producers, like other businesses involved in production agriculture, face the challenge of having price swings dictated by the marketplace. Volatile dairy markets likely will discourage extended outlays in renewable energy.”
For example, a 1000-cow dairy could possibly produce enough energy to cover the farm's needs, with power to spare. But the excess power sent out through the grid to other users generates no revenue for the dairyman.
Those who might have determined that investing in renewable energy technologies could fit within their dairy management scheme, were turned off by the fact that they could never get paid for any power they would produce.
However, Marsh said, that situation may be solved through power purchase agreements being drafted by Pacific Gas and Electric to allow dairy owners to sell their generated power directly to the utility.