As Margins Collapse, Cattle Producers' Biggest Challenge is Survival

Beef Produecer Prices-AgDay
As the impact of COVID-19 continues, trying to stay afloat may be too much for some operations to withstand. Some producers now face a tough reality: liquidating cows and a shrinking cattle industry. ( Drovers )

Livestock producers like Bruce Mershon continue to watch the cattle markets crumble.

“Our largest challenge today is survival,” says Bruce Mershon, owner of Mershon Cattle in Buckner, Mo.

Mershon is a Missouri cattle producer who’s not alone in watching market prices continue to drop. Cattle producers across the country are seeing more red trading days than green on the Chicago Mercantile Exchange (CME), which means muted margins are just getting worse.

“We're working on negative margins, whether it's our cow-calf operation or our stocker operation,” he says. “The prices have declined by significant amounts and we're working on negative margins. It's just survival mode today.”

A recent study from a group of economists shows the early price tag of COVID-19 on the cattle industry was $13.6 billion, and the situation isn’t improving.

“We have less demand for cattle coming in,” says Derrell Peel, a livestock specialist with Oklahoma State University. “We simply can't process them. And depending on exactly where it happens and the combination of plants that might be involved, that could be a very significant disruption in demand and, at least for some period of time and cause significantly lower cattle prices.”

Lower cattle prices are exactly what producers like Mershon are experiencing. Peel says the cow/calf side of the business is seeing the heaviest impact from COVID-19, something Mershon is experiencing first-hand.

“I hate to see us liquidate cows as an industry and shrink our industry, but producers can't sustain this,” Mershon says.

Trying to stay afloat may be too much for some operations to withstand, meaning some producers may have to exit the cattle business this year.

“I'm afraid we are going to lose more producers - especially as this lingers out for months - they just financially don't have the equity to stay,” Mershon adds.

As margins continue to collapse, there’s a new call for clarity. Mershon is not only a cattle producer, he’s the current Vice President of the Missouri Cattlemen’s Association (MCA). Missouri was one of 23 organizations that recently sent a letter to the Department of Justice (DOJ) asking for an official investigation into the beef packing industry.

“I was fortunate to be on a on a conference call with Secretary Perdue about a few weeks ago, and we found out there is limited amounts of investigation that the Packers and Stockyards Act can do,” says Mershon. “They don't have all the subpoena power and everything that a Department of Justice might be able to do for discovery.”

Mershon says while he hopes the price disparity between boxed beef and cattle futures is a true function of the market, he thinks the investigation will bring the facts to light.

“We want to sure to the producer and the consumer that there's not a coordinated effort to expand their margins,” he says. “We want to make sure that it's just in the marketplace that this is going on.”

The latest Sterling Profit Tracker shows cattle feeders lost $262 per head the week ending in April 25. That’s while beef packer margins shot up $304 to a net gain of $771 per head. Sterling Marketing, that put together the Profit Tracker, says packer margins may be inflated, as the figures don’t account for added costs from COVID-19.

One of the challenges is packing plants staying open, which is causing chaos in the packing industry. AgWeb has an interactive map to keep up with the shuffling of plant production during the pandemic. New data released to Farm Journal shows while four beef packing plants in four states are either closed or slowed, four plants have opened back up.

“We've never had a situation that I'm aware of in this country where we see multiple plants go down and not only multiple beef plants, but across the board,” says Peel.

As packing plants try to come back online, the uncertainty surrounding the future of the cattle industry remains unclear. That’s as producers like Mershon are just taking the loss of markets—and prices—day by day.

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