Colorado Prodcuers’ Takes on Cattle Situation: With greater reward comes greater risk, ‘significant’ resources needed to stay in the game
July 1, 2014
Larry Croissant, a northern Colorado rancher who's been around the cattle industry his entire life, is for the first time seeing his 600-pound calves sell for $1,400 apiece — a price that not long ago he would have gotten for two fed steers.
But with greater reward comes greater risk, Croissant said, and even cow-calf operators, who are benefiting the most from record-high prices in the cattle industry, are nervous about how high the stakes are now.
"It takes twice as much operating capitol to run the same number of cattle," Croissant said.
James Robb, director of the Livestock Information Marketing Center in Denver, said prices have continued to rise in the industry, up 15 percent from last year for fed cattle and 30 percent for calves and yearlings, for example.
"We've blown through all the past records by a big margin," Robb said.
The price spikes, however, are likely to level off.
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"The very quick run-up in the last two years in the beef market and the calf market, most of the run up is behind us," he said. "That's not necessarily bad news, because we have a lot of profitability."
In 2013, the country's cattle herd was the smallest it had been in more than six decades, a shortage that has caused prices in the industry to skyrocket.
Robb said overall, the industry is turning the corner from selling off cattle due to drought to building herds as conditions improve and feed prices go down.
"This will be a very measured expansion," Robb said.
To Croissant, the prices he's getting for his cattle are foreign, and in a good way.
But the higher prices mean there's more to lose, he said, and paying for risk protection is more expensive.
"You've got calves on the ground, and it looks like $2 calf prices out there," he said. "The risk is that price won't be there when you're ready to sell."
With feed prices markedly lower now than they have been in the past few years, Croissant said he and other ranchers are seeing even more good news.
That good fortune on the producer's end is a long time coming, and it'll likely continue for the next few years as they work to rebuild the herd, Robb said.
"Ranchers this year will make unprecedented profits in Colorado," he said. "It's about time. They've had some tough years."
The sale barn
Brad Jones, branch manager for Greeley Producers, said he's been at that business for 15 years, and his head is spinning from the prices he's seeing animals sell for in the sale barn.
"(Prices are) so far above what we'd normally see, it's just crazy," he said.
They're so high, in fact, that many people are "on pins and needles," wondering when the prices will come back down.
"Everybody's really wondering if we can hold this together," he said.
Jones said the bidding is more competitive, and the prices are to a level that require bidders to have significant resources to even stay in the game.
He said most are predicting prices to level off.
"Anything that shoots up this quick is not a real market," he said. "Everybody gets caught up in kind of a frenzy, and it's not a real, true market."
Croissant's Briggsdale operation is becoming more and more rare.
He breeds Red Angus cattle, but he also runs a small feedlot, with a capacity for about 800 head. He said he's developed a business model that helps balance out the losses he'd otherwise incur from the feedlot portion.
"If we would not be developing our bulls here, we would not be able to run a feed yard, a ranch-to-rail type feed yard," he said.
Croissant said lower feed prices are helping his input costs in the feed yard, but he reaps most of the benefit from that on the cow-calf side.
"When the feed prices come down, the cow-calf guy gets a double plus," he said.
The packing plant
Cameron Bruett, spokesman for JBS USA in Colorado said while companies like his are paying more for cattle to process, it's a good thing for the entire industry that the cow-calf producers are doing well.
"We need the cow-calf producer to be successful, to get a return on his investment, to be rewarded for the efforts he does," Bruett said. "Right now they're being rewarded handsomely by the market, and that's good for our industry. They're the lifeblood of our industry."
Bruett said the high prices are a concern in the retail sector, since skiddish consumers could mean trouble for the industry.
"We certainly don't want to get our beef prices so high that we start to see consumer pushback," he said.
To ensure a working balance, Bruett said his company has developed strategies that allow them to be flexible with customer demand.
Robb said packing companies that had the foresight to secure more cattle when herd numbers began to dwindle are doing well. Those who didn't secure more resources have struggled, but they're seeing some relief so far this year.
"To date, they've had much better margins than they've had for the past few years," Robb said.
At the steakhouse
Matt Larson, managing partner at Kenny's Steakhouse in Greeley, said even with a few recent price increases on menu items, customers haven't complained about paying a bit more, and his restaurant hasn't seen a decline in business.
Larson said beef prices this high are uncharted waters, but his strategy is to maintain the same quality of beef products he offers while not "overreacting" by raising his prices every time the market goes up.
"One thing I don't believe in doing is cutting back our portions or cutting back in our quality," he said. "I think people notice that kind of thing. They notice the higher price, too, but my philosophy is they're more willing to accept a small price increase than you starting to change your recipes or chance the quality of your products."
Larson said since there's no way to predict what the prices will do in the long run, he works to balance out the higher prices by offering more specials on other items.
He's also working to make up for higher beef prices in other areas of the business.
"If you're going to cut back, you just need to be more efficient with how you run your business with your overhead," he said.
In the meat cooler
Robb cited Bureau of Labor statistics that indicate that retail beef prices have increased significantly over the last year.
For example, uncooked ground beef cost $3.75 per pound, on average, in May of last year.
This year at the same time, the same product cost $4.21 on average.
Even with that increase in price and a steady upward trend the last few years, Robb said there's been no significant decrease in consumer demand for beef.
Robb said U.S. consumers are seeing price increases in other meat industries as well, particularly in pork and chicken, so the uptick in beef prices aren't so stark, comparatively.
"Consumers are still cautious, but they really have held up their demand," he said.
Robb said high prices haven't deterred export markets, either, which has given the industry a great deal of cushion. He said as other countries' economies gain strength, they're willing to pay for quality protein sources.
"We're at record-high prices, and we're still exporting more tonnage than we were a year ago, especially to Asian markets and Mexico," Robb said.
Looking ahead, Robb said its difficult to say how many more price increases the market will tolerate and how much more consumers are willing to pay. The key to that, he said, will be whether the country's economy continues to strengthen over the next few years.
"I think we're right at that point where it's really hard as an economist to say," he said. ❖