The impact of the worst drought in 50 years will be felt into early 2013 as the US cowherd is forecast to shrink by more than 1 million head to 89.5 million by January.
The US cowherd was at 90.8 million head at the start of 2012, but severe and persistent drought conditions affected three-fourths of that herd, according to Mike Sands, vice president of Informa Economics, who was speaking at the Feeding Quality Forum in Grand Island, Neb., and Amarillo, Texas.
“We’ve seen some extremely tight packer operator margins over the last year," Sands said. "That’s unsustainable. We’re looking at sizable cattle feeding losses at the present time. Those are unsustainable.
"It probably boils down to some change of the structural capacity in the industry,” he added.
The effects of a shrinking cowherd will be felt along the supply chain and could result in fewer feedlots and packers to process the meat. Beef packers have been vying for tight supplies of cattle for much of the summer. Evolving dynamics within the cattle industry may find packers and cattlemen forming alliances, according to Sands.
“Not only marketing agreements with packers as a possibility, but also to access feeder cattle in terms of retained ownership programs,” he said. “We’re going to have to work out relationships to get access to those feeder cattle and calves.”
Converging factors such as tight beef supplies and a sluggish economy will mean consumers will have a higher expectation for beef quality because beef prices will be higher.
“Despite declining cattle and beef supplies and rising prices, quality never goes out of style. As price levels go up, there is going to be a quality expectation,” Sands said. “You pay more for a product; you expect a different set of attributes than when it was cheaper. And as a result I think there is a quality-value relationship there that is certainly going to come to the forefront over time.”
Source: Argentine Beef Packers S.A.
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