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October 13, 2024
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America’s Looming Cattle Crisis | The Epoch Times

The Epoch Times

As America’s ranchers struggle to earn a living, domestic cattle herds are shrinking to the lowest numbers in 70 years and cattle farmers are exiting the business by the tens of thousands each year, leaving the United States ever more dependent on imports, agriculture analysts say.

A new report from the Federal Reserve Bank of Kansas City highlights the plight of cattle farmers, stating that higher interest rates are now putting many of them into the red.

And ranchers say that escalating loan expenses are just one of several factors driving them to sell off their herds, which may herald even higher beef prices for consumers in the years to come.

“It’s hard to trust this thing, keeping herds or buying more,” Kansas rancher Kyle Hemmert told The Epoch Times. Rather than borrow to invest in new herds, he said, many ranchers are opting to simply sell off their cattle.

While cattle prices are currently at nominal highs for farmers, prices were also high in 2014, spurring many ranchers to borrow money and expand their herds in expectation of profitable years to come. 

What happened next, however, was a flood of imports from Mexico and Brazil that hit the market starting in 2015, driving down prices and putting many American farmers into the red, according to a report by Ohio State University.

Ranchers talk of that time, selling into an oversaturated market with prices plummeting, as “trying to catch a falling knife.”

With cattle prices now rising again, agriculture economists say that, according to what is known as the cattle cycle, farmers would typically invest in expanding their herds at this point.

But instead, many ranchers are liquidating their herds and thousands are leaving the business altogether.

“They’re liquidating because, one, long-term lack of profitability; two, widespread drought; and three, lending institutions just refusing to carry them any further because of the long history of depressed prices and losses,” Bill Bullard, CEO of R-CALF, told The Epoch Times. R-CALF is an organization of cattle farmers that calls itself “the national voice for independent cow-calf producers and feeders across America.”

“Once a rancher liquidates, there’s a high likelihood that they won’t get back into ranching,” Bullard said. 

“There’s a loss rate of over 20,000 ranchers per year for the past five years, and you add that to the fact that we’ve lost 655,000 beef cattle operations just in the last four decades since 1980.”

No Relief on Beef Prices

Consumers have already seen beef prices skyrocket since 2020 and will likely see more of that in the months to come. The average price of ground beef rose from about $3.80 per pound in 2020 to $5.50 per pound as of June of this year, according to data from the St. Louis Fed.

And a January market report by William Secor and Benjamin Campbell, agriculture economists at the University of Georgia, predicts that beef prices will continue to rise through 2024.

“If we look at the data that we have, it’s likely that we’re going to have tighter supplies going forward, which would suggest that prices are going to remain elevated for the next several months,” Secor told The Epoch Times. “The general cycle is that when we start to tighten up these supplies, there’s a point where, when we want to start rebuilding, we retain some of those cattle that normally would be going through the supply chain just to keep normal levels of inventory.”

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A California rancher walks through his herd of beef cattle on a ranch that has been family-owned for five generations, on the outskirts of Delano, in Calif., on Feb. 3, 2014. (Frederic J. Brown/AFP via Getty Images)

In the near term, this stage of the cattle cycle would drive beef prices higher as farmers hold back cattle for breeding rather than sending them off to slaughter. But over the longer term, higher prices would result in larger herds, which would eventually bring prices back down, Secor said.

However, America’s farmers thus far do not appear to be rebuilding their herds.

“More cattle continue to be sold off into the beef supply chain,” the Fed report stated. “Also, inventories for beef cows and heifers continued to decline, signaling that market and financial conditions have been more conducive to selling heifers and cows than retaining them.”

When this wave of selling passes, depleted inventories could result in even greater shortages and additional spikes in the cost of beef, likely increasing America’s dependence on beef imports.

A 2023 report from the U.S. Department of Agriculture stated that “imports are forecast to increase through 2024 as domestic beef production declines.”

While the United States is still the world’s largest producer of beef, it has also become a net beef importer. Imports have typically been lower-grade frozen meats for blending into ground beef, shipped from Brazil, Australia, and New Zealand, the report states. More recently, however, imports of higher quality fresh cuts from Canada and Mexico have also increased.

American ranchers successfully lobbied in 2002 to get mandatory country-of-origin labels placed on beef packaging.

However, foreign beef producers filed suit with the World Trade Organization, and the United States repealed country-of-origin labeling in 2016 for beef and pork, though it remains in effect for lamb, chicken, and goat meat, and other perishable agricultural commodities.

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A butcher processes meat at Vincents Meat Market in the Bronx borough of New York City on April 17, 2020. (David Dee Delgado/Getty Images)

Interest Costs ‘Can Eat You Up’

Competition from imports has put added pressure on prices and profit margins for American ranchers, and recent interest rate hikes have now put many ranchers into the red.

Over the past decade, “cattle producers had opportunities for positive profit margins nearly every year,” the report from the Kansas City Fed states. “However, so far in 2024, the range of prices has stayed below the total cost of production.”

While nominal prices for beef this year are the highest in a decade, farmers’ costs are also at historical highs. When higher interest expenses are added in, there is often no profit left for ranchers.

“It’s pretty detrimental to a young guy that’s trying to expand or first-time ranchers trying to get into the cattle business,” Hemmert said. “Interest rates can eat you up.”

Raising cattle is unique among animal farming due to the length of time required for cows to reach maturity and become marketable, all of which must be financed, often through operating credit lines from banks. And during this time when there is no income, there are the expenses for land, equipment, veterinary services, vaccinations, fuel, and feed.

“I think it would be hard for someone not involved in agriculture to understand how much money we flow through,” South Dakota rancher Brett Kenzy told The Epoch Times. “The joke is ‘borrowing millions to make thousands.’

“We’re used to operating on a real tight profit margin, and then when interest goes up like this, that can erode all of that margin,” Kenzy said.

The Fed report says that America’s cattle herds have now fallen to their lowest levels in more than 70 years. 

While ranchers are taking advantage of a short-term opportunity to improve cash flow by selling off cattle, the longer term problem is that with smaller herds they are less able to make a living even in years when prices are good.

An additional concern for ranchers is that consumers shift their buying habits as beef becomes less affordable.

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A customer shops for meat at an Andronico’s supermarket in San Anselmo, Calif., on June 8, 2022. (Justin Sullivan/Getty Images)

“The risk is that, if consumers don’t feel quite as confident in their purchasing power going forward, they might start to look at cheaper sources of protein,” Secor said. “That might mean, for some consumers, shifting within the beef segment, maybe moving from steaks to burgers, but it could also mean shifting out of beef altogether.”

Aside from rising interest costs, ranchers in Texas and Oklahoma were hit by wildfires in March, which are estimated to have killed thousands of cattle alongside other damage. Drought conditions impacted many farming regions from 2020 through 2022.

Many market watchers say the consolidation of food production into an ever-smaller number of farmers and meat processors, coupled with an increasing dependence on imports, creates food security risks for the United States.

“We have such a frail market system now—as we saw in COVID, it doesn’t take much of a wrench thrown into the gears to collapse everything,” Kenzy said. 

“When we had widespread, family agriculture and a lot of producers spread across the country, we had a pretty resilient system where if one area went down the other area can pick up the slack.

“But now, we’ve leaned so far into efficiency that any hiccup can really have catastrophic effects on food availability.”

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