Cortney Cowley, senior economist at the Federal Reserve Bank of Kansas City, submits there are three long-term trends which will pressure the profitability of the U.S. cattle sector in the future. In a recent Kansas City Federal Reserve Bank Economic Review article, Cowley says “vulnerabilities submits along the supply chain; extreme weather conditions, particularly drought; and shifting demand from U.S. consumers” could continue to pose risks for cattle producers.
Cowley writes a more efficient, concentrated supply chain, operating under a “just-in-time” mindset better matches supply and demand and reduces excess capacity. The tradeoff, though, as evidenced by COVID and other recent supply shocks, is a more vulnerable system when shocks occur. Compound this with the sector’s lengthy production cycle—it can be nearly three years from when a cow is bred to a calf’s sale for slaughter—means the industry is slow to respond when supply shocks occur. This can create financial stresses for producers Cowley says.
Cowley also notes there have been more frequent droughts in recent decades which have influenced cattle inventories. Over the past two decades, beef cow inventories have declined in the Southwest, an area of repetitive droughts, and increased in other states, like Nebraska, where drought has not been as prevalent (Figure 3). Drought can force producers to sell off part of their herd and lead to higher production costs, hay prices, and other feedstuff prices. Cowley worries droughts will worsen in intensity and frequency with climate change, putting additional pressure on producer profit margins.
Figure 3. Changes in Beef Cow Inventories Since 2000
Another pressure point is changing consumer preferences. Over the past few decades, consumer consumption of pork and chicken has increased relative to beef (Figure 4). Growing health and environmental concerns, the higher relative price of beef to other meats, and plant substitutes are eroding the consumption of beef relative to its protein competitors. A bright spot for beef demand, though, has been beef exports. Rising exports have helped overcome the trend away from the consumption of beef in domestic markets. Last year the U.S. set a record for beef exports. Cowley indicates strong export markets need to continue to provide markets for U.S. beef.
Cattle and beef production are Nebraska’s largest agricultural sector. Cowley’s article provides “food for thought” regarding the future of this vital sector for the state’s economy. It can be found HERE.
Figure 4. Beef, Chicken, and Pork Consumption