Reason to beef

That Christmas prime rib is likely to cost a pretty penny this year but it doesn’t mean the ranchers who raised the beef are pocketing the increase.

In the eternally cyclical cattle market, beef prices are at record highs for a number of reasons. That includes the drought of the past summer that decimated hay and feed grain crops and has put pressure on winter pasture for cattle around the country.

The ongoing COVID-19 pandemic also is a factor on the supply chain. Labor shortages because of the pandemic have added to a backlog of cattle at the feedlots, giving packing companies that sell the beef to retailers marketing leverage.

Shannon Neibergs, an agricultural economist at Washington State University, said those high beef prices at the grocery store are not trickling down to the ranchers.

“Ranchers have culled their beef cows more this year than any other year over the past five years,” Neibergs said. “Across the West, we had a pretty significant drought and that drought is really hurting people.”

Local hay producers earlier reported hay crop yields cut by 50 percent or more this summer because of high temperatures and drought. Neibergs said he has heard some “crazy stories” about people paying $300-plus for a ton of hay, which usually sells for half of that.

“Once it gets up to $300, if you’re trying to make a living on those cows, it doesn’t pencil out,” Neibergs said.

Those high feed prices are forcing many ranchers to cut back on their herds. With more cows coming into the market, Neibergs said, one would expect the price of beef to go down.

But that supply-and-demand principle isn’t working this time. Instead, it is creating a backlog of cattle at the feedlots, made even worse by a labor shortage resulting from the pandemic. Most of the cattle going into feedlots currently would not make premium grades that sell as steaks, Neibergs said, but instead are being made into cheaper-priced hamburger and selling to restaurants and grocery stores.

“And that’s what really got most of the angst across the country, because the retail prices are setting record highs, but the cattlemen aren’t receiving that premium,” Neibergs said.

Neibergs said ranchers who sold their cows in October or November are likely to wait months before they see any bump in returns because of the backlog of inventory at the feedlots.

Wednesday, the U.S. House of Representatives took note of the paradoxical situation in the cattle industry and passed a pair of bills to provide certainty and transparency in cattle markets.

According to a news release from the Livestock and Foreign Agriculture subcommittee, the bills include a one-year extension for the Livestock Mandatory Reporting Act that was set to expire in February.

House Agriculture Committee Leader Glenn Thompson said the committee has heard “from a diverse group of livestock industry stakeholders about the challenges they are facing and ideas for potential marketplace reforms. ... Everyone seems to agree that more market transparency is a good thing and a contract library could be helpful in providing that transparency. Producers can’t afford to lose access to the information already provided through the Livestock Mandatory Reporting program so it is essential we prevent a lapse in program authority.”

Neibergs said another factor in 2021 was the rapid increase in corn prices that occurred before summer.

Earlier in the year, China bought a large quantity of U.S. feed corn, and when producers realized there was a corn shortage in the country, “that really bumped prices up. So when corn prices go up, feedlots have to back off what they pay the ranchers for the cows because cows will be fed that high-priced corn,” he said.

Other issues, such as marketing agreements that packing plants make to lock in prices for the future also have played into the picture, Neibergs added. The cattle industry is calling for the government to limit the use of marketing agreements to improve competition in the marketplace so that it can pass back through the production chain.

An increased demand for U.S. beef from other countries also is driving up the current price of beef.

What it all means is that, for the time being, consumers will continue to pay top dollar for beef products while ranchers will be feeling the pinch.

“In 2015, ranchers were making record-high prices and that cycle has moved away from them,” Neibergs said. “We’re hoping the cycle reverts back to the cattlemen making more money.”

Hedberg may be contacted at kathyhedberg@gmail.com or (208) 983-2326.