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Beef Prices Driven by Demand
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One of the great treasurers that I inherited with my job was a file of detailed agricultural statistics that go back to 1880. Prior to 1940 the statistics are so detailed that I have exact numbers of farm families that had telephones, electric lights, indoor plumbing, lived on a dirt road, made butter, laying hens, pear trees and everything else that affected farm life.
Prior to 1930, I guess the most amazing statistic was the one that was missing. There were no recorded numbers of beef cattle. I assume the reason was because 2241 Clark County farms had dairy cattle, which was just about everyone at that time, and the culled or fed dairy animals provided the beef. As dairy farms declined, beef farms began to increase. Seventy-five years later there are 200 beef farmers to 5 dairies in the county. One of the most successful TV commercials of all time involved the beef industry. It involved a little old lady, “stooped over”, with a cane, looking at a huge hamburger bun with a beef patty on it about the size of a quarter and she would yell out: “Where’s the beef?” Today it’s the consumers yelling where’s the beef, since we now have record beef prices in the U.S. All farm commodity prices are based on supply and demand. Today we have a tight supply of beef with record demand. This article will attempt to explain how this occurred. High beef prices are not typical. Most cattlemen break even raising beef because farmers and ranchers have a love of cattle. Even city people love cattle. When I teach agriculture in the Springfield City Schools I am amazed how many students tell me they love cows, even though many have never touched one! Many producers would love to raise cattle for a living, but profit margins have not been favorable for decades to encourage farmers to make a living raising cows. I read in newspapers and farm magazines every month about ranchers out west having to sell land in order to keep ranching. Some have gone from 25,000 acres to owning only 400 acres to keep their “way of life”. In 1960 Ohio State University hired a West Virginian by the name of Roy M. Kottman to become the Dean of the Agriculture College. Kottman was a giant of a man when it comes to success stories. He built OSU into one of the top ag schools in the country. The Experimental station went from one site to fourteen across the state. Extension became one of the top three Extension Services in the country with Wisconsin and Cornell. However, one of his major goals did fail and it involved beef cattle. Dean Kottman was an animal scientist and he loved cattle. He saw the economic problems in the hills of southeastern Ohio. He felt that beef cows on every hill would boost the economy of that region. He built three Experimental Stations there and researched beef cattle on all of them. Despite all his efforts, farms continued to be abandoned and would end up in trees. Why did Kottman fail in this beef venture? The answer is that the comparative advantage for cow-calf operations is in the west due to free grazing lands. Fencing in Ohio and land costs are not cheap. In 1987 I toured ranches in North Dakota. Many ranchers “back-ground” cattle on government land. The government owned the land, built and maintained fences, seeded and fertilized the pastures, and even sprayed them with herbicide to control weeds. The rancher was responsible for mineral and opening the gates to move them to another pasture. All they paid the government was 5 cents per head per day because that is what the long term leases were written for generations ago. There is no way we can compete against the government leases in the west. Profit margins have been so small that ag economists would joke that the size of the Southeastern Ohio cattleman’s herd is directly dependant on how good his off-farm job is; the higher paying the job the more cows he could afford to own and lose money on. Due to poor profit margins five years ago, many producers cut back the size of their herds. Drought in the west last year caused many ranchers to sell their cows or send them to slaughter. The above two events caused a tight supply. This spring BSE, called by many Mad Cow Disease, was found in one cow in Canada. Immediately, the U.S. government stopped all beef imports from Canada. That ban is still in effect. That reduced the supply another seven per cent. Then beef demand soared due to Americans adopting high protein diets such as the Atkins Diet. In addition, U.S. trade efforts accompanied by higher incomes in developing countries has increased foreign demand for U.S. beef. Now you have five events that occurred at the same time to reduce beef suppliers and this resulted in one thing: higher prices for beef. I’m sure a lot of people have a “beef” about higher prices, but it’s been a long time coming. Hopefully, the price hikes will save some western ranches, eastern farms and put some more cows on hills in southeastern Ohio. Think I’ll have a double cheeseburger and help them out. Keith L. Smith, Associate Vice President for Ag. Admin. and Director, OSU Extension TDD No. 800-589-8292 (Ohio only) or 614-292-1868 Updated: December 2003 |