The Worry Of Record Prices

02:29AM Aug 30, 2014
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Cowboys are calling 2014 a once-in-a-lifetime market. Record-high prices were established with regularity through the first seven months of the year, and the fundamentals suggest there is more to come. Feeder cattle and calves went on a three-month-long rally that saw prices increase by 35%. After a short breather, they started climbing again.

Two weeks after recording all-time record high prices at $157, feedyard managers were turning down bids of $162 the third week of July. The gamble paid off later in the week as packers were forced to up the ante to $165 to $166 in order to keep the pipeline flowing. The following week cattle feeders were asking $170.

Price realities. All of this made a lot of people nervous. With fed cattle selling in a range where high-priced feeders sat three weeks earlier, what’s a reasonable price for feeders? And how can we hedge new cattle that carry a breakeven above $170?

Cattle feeders are justified in their worries, as a year ago they were deep into red ink on every animal they shipped. One feeder wondered, "If you know how much money can be lost on $160 per cwt. feeders, just think how much can be lost on $260 feeders."

More worrisome, however, is the looming reality that retailers will be forced to significantly raise beef prices. At what price point does consumer demand begin to waver? We can’t know for sure, but what we do know is that our resources for stimulating that demand are sorely limited.

Drought and herd liquidation drove cattle numbers to levels not seen since Harry Truman was president. That phenomenon delivered the record prices we’ve enjoyed all year and will likely keep margins for all segments solidly in the black the next few years. But those dwindling cattle numbers also reduce beef checkoff collections.

Locked in to a $1-per-head assessment, fewer head sold means there are fewer checkoff dollars for research, promotion and consumer education. It’s been an ongoing problem for the staff at the Cattlemen’s Beef Board for the past several years. They have fewer dollars to work with than when the program started more than a quarter-century ago, and those dollars only buy about 50% of what they could in 1988.

CBB has cut and pared their budget, but many worthy programs just can’t be funded. With retail beef prices headed higher this fall and CBB coffers nearly empty, we shouldn’t expect significant promotional help for beef, though we’ll likely need it.

The solution, of course, is raising the checkoff. Several states have successfully increased their state checkoff recently, and national survey data shows approval for the national checkoff exceeds 70%. That would suggest the climate is favorable for efforts to increase the money into our industry’s only self-help program. Are you willing to help? Talk to the staff of your state beef council. It’s past time to raise the checkoff.