A few thoughts on the price of beef

The US cattle herd is at its lowest level since 1976. At that time, there were 216 million people living in the US. There are now approximately 340 million. On a per-capita basis, in 1976 there were 50% more cows per person than there are now.

I was surprised that the mass culling of cattle herds is not considered a major reason for the reduced number of cattle. Those actions primarily impacted dairy operations and the price of milk.

Rising costs to running a business are the primary drivers of the smaller cattle herds.

Cost of land

The cost of land in the Rocky Mountain states is at a historical high. It takes between 2000 and 10,000 acres to have a viable ranching operation in Wyoming. With costs running approximately $1800/acre for non-irrigated land, that means that you need to spin-off enough cash EVERY YEAR to pay the interest on a $3 million loan.

If you have a ranch near the low end, say 2000-to-2500 acres, you better have some water-rights so you can grow some irrigated alfalfa. That is going to bump the price up even more. 

It probably comes as no surprise that much of the land is being bid-up by people who made their fortunes in California and cashed-out their house in Silicon Valley or Los Angeles. THEY don't need to run an economically viable ranch so bidding "more than the land is worth" from a cash-flow perspective is a non-issue.

Another reason they don't typically try to run a viable cattle operation is that it consumes a huge amount of time and is often under brutal weather conditions. 2000 acres seems huge to somebody who lives in a suburb (it is, after all, more than three square miles) it is too small to pay for a professional manager. So the new owner might keep a few head of cattle around as animated lawn ornaments but will not keep the property alive as a viable business enterprise. Ergo, no calves sent to market.

Side note: Not all rich people do that. I have heard good things about Beau Turner (Ted Turner's kid). One nice thing about having an external supply of money is that he can experiment with different kinds of livestock and iron the kinks out of the system. 

Cost of interest

Interest impacts more than just the true-cost of the land.

Except for horses and camels, there are no other domesticated animals that take longer from birth-to-market than cattle. Furthermore, there is a long time-lag between when a heifer-calf drops and the age at which she can safely give birth to her first calf. Additionally, cows very rarely give birth to more than a single calf.

Together, that means that there is a very long time-lag between when economic signals trigger "expansion" and the actual number of carcasses being delivered to the meat-packers increase.

The rancher has to walk a fine line. If he holds back too many heifers he is foregoing revenue. If the increased prices are temporary he will have walked away from money on the table and be stuck with more mouths to feed after the prices tank. He bears the brunt of the carrying-costs of maintaining those animals and high interests rates makes that a brutal situation.

Cost of feed

A typical "value chain" for beef is that an operation in the Rocky Mountains runs a cow-calf operation. At a weight of 600 pounds the calf is sold at auction and purchased by a feedlot which feeds it a diet designed to first add muscle to the frame and then to add enough fat to meet the markets' demand for marbling. That diet is rich in grain and soy products.

If the price of grain and soy goes up, then the prices the feedlots can afford to pay at auction goes down.

Even though the ranchers in the Rocky Mountains feed very, very little grain to cattle, they know the dynamics between the cost of corn/sorgham/barley and the prices they will get at auction. When they read that Canada (for instance) is passing laws to limit the amount of fertilizer that farmers in Manitoba, Saskachewan and Alberta can use on crops, they know that the domino effect will cause a permanent rise in the price of grain in the US.