Our recent beef price increase is due to world commodity prices. Many people would like to
think that farms like Polyface are immune to industrial price fluctuations, but just like no man is an
island, neither is any farm an island.
In 2013, the world inventory of beef cattle dipped below the number in 1950. Let that sink in
for a little bit. Think about the world in 1950. China. India. Africa. At half the population and half
the wealth, that was a different world. The beef cattle inventory has returned to that level, creating
an unprecedented shortage.
Right now, today, Polyface would make more money selling our finished beeves to the industrial
food system than direct marketing to our customer families. Think of that. The price spike in the last
year has moved the value of a 1,000 pound steer from $900 to $1,800. Supermarket prices are creeping
up, but the ones that are taking it on the chin are the feedlots and processors–those notorious middle
men. For the last year, many feedlots have been losing $200 per head, but each is hoping the next
guy will go out of business first. The deepest pockets will win. Shallow pockets will go out of business
as the industry consolidates due to financial pressure.
Here at Polyface, we buy from neighbors about half the cattle we grass finish. Those producers
have no desire to take less for their calves than the market will bear. They’ve been waiting a long time
to be in the driver’s seat like this. The result is that what we paid $700 for last fall will cost us $1,100
this fall. That’s $400 per head.
If an average carcass yields 400 pounds of usable product, that’s an average of $1 per pound
increase just to stay even. But even that is not really even because the value has also risen on the
pounds after calf weight–those other 500 pounds we’ll put on in the pasture. To really stay even,
we need yet another $1 per pound increase. Why should we get less for our grass finished beef than
the industry gets for hormone-drug-grain feedlot junk?
Why is the world inventory so low? I think three things have caused this perfect storm. First,
some huge droughts have literally depopulated areas in the Dakotas and the southwest. Australia
is in significant decline after a series of historic droughts. Twice in the last 5 years I’ve been in Australia
when droughts resulted in thousands of animals being shot and buried on farms because not enough
abattoir capacity existed to handle the sudden liquidation. Many cows,
the breeders (mamas) went into ground beef because farmers had no grass for them.
aging farmer is slowing down. With the average age of cattle owners now approaching 70 (average
for all farmers is nearly 60) these farmers and ranchers aren’t willing to expand at any price. Rather
than responding to price increases like normal, the tepid response indicates life cycle fatigue. Millions
of acres of farm and ranch land have simply been abandoned in the last 15 years due to the aging
out of livestock operators.
Third, huge areas of the world previously devoted to grass have been converted to crops for
both people food and fuel production (biodiesel and alcohol). Argentina, bastion of pampas and
grass production, is converting millions of acres to GMO corn and soybeans. Ditto for Uruguay and
Paraguay, both historically significant contributors to the world’s beef supply.
This spring saw the first significant response to the high prices: farmers began retaining heifers
to become mama cows and produce more calves. But that created the current firestorm because all
of those heifers that would have gone to abattoirs and entered the beef trade have been kept alive.
They’re all out walking around rather than being in tray packs at the supermarket. It appears that this
extreme world wide shortage will last for at least three years. That’s how long it takes for a heifer to
breed, birth a calf, and for that calf to grow up to processing weight. It’s a long cycle.
At Polyface, we’re responding to this like many other producers–retaining heifers and expanding
our cow herd. That means we won’t have to buy calves, but it also means we won’t have as many to
sell because our grass, rather than fattening finishing animals, will be carrying mama cows. We’re
looking at our own shortage that is simply a microcosm of the bigger world issue. Just 20 years ago
I remember buying 500 pound calves for $300. Today, those calves are bringing $1,200.
What an exciting time to be alive.
Aug. 15, 2014