Beef Herd Will Continue to Decline in 2010

By Kim Watson Potts, editor Beef Today

Most analysts expect the next beef cattle inventory report to show another decline in the nation's cow numbers later this month. There are a number of reasons that beef producers remain hesitant to increase cow numbers.

In the past few years, the weather and limited grazing opportunities in key regions have stymied herd growth. Also, higher corn prices increased production costs limiting expansion.

But 2008 and 2009 offered external pressures that have kept cow numbers at bay. The general economy, both domestically and globally, has impacted beef consumption and demand, which in turn pressured prices and will likely continue to do so.

According to the 2010 Rabobank North American Outlook, consumer loss of wealth significantly curtailed consumer spending in 2009. That has spilled over into food expenditures as there has been a steady deterioration in the food-service sector sales, particularly at the high end establishments like steak house restaurants. When comparing store sales at different food service chains in the fourth quarter of 2008 and the third quarter of 2009, steakhouses like Morton's saw a 16.8% decline in sales and Ruth's Chris saw a decline of 24% in sales, according to Rabobank's analysis. Fast food establishments, however, saw steady sales or even slight increases. For example, McDonalds saw a 2.5% increase in sales.

"The $1 menu at a fast food restaurant will not replace the weaker demand on middle meats and will not support $1/lb. fed cattle market," says Iowa State University agriculture economist John Lawrence.

So when the economy turns around, will beef production ramp up as well? Maybe, but there are so many other factors that play into the beef complex.

"Compared to two or three years ago, cowherd costs are up, particularly land and forage cost due to higher corn prices," says Lawrence. "The higher corn prices are also dampening feeder cattle prices so the cowherd is squeezed from both sides.  I think beef cow numbers will be lower in 2010 and each year through 2012."

Gregg Doud, economist with the National Cattlemen's Beef Association, agrees that a number of factors have limited expansion. His short list:

• Higher corn prices
• Consumer economic pressures
• Soft demand at food service
• Increased competition from competing meats
• Decline in exports

On a positive note, Doud says a better grazing outlook and ample hay supplies are expected this spring and summer, and the export outlook is expected to improve moving forward. He feels that pork prices this summer could be high enough, that it will lead to more movement for beef.