Beef prices strong, but rising costs and consumer confidence are concerns
Although interest in beef production is high in part because of record-high prices producers have been fetching, some producers have concerns about rising prices for feedstuff and gasoline, which could make consumers less likely to buy pricey cuts, an Ohio State University Extension expert says.
"There's a lot of enthusiasm because of what animals are worth at the market, but input prices such as fuel, feed and fertilizer are still an issue," said John Grimes, beef coordinator for OSU Extension.
Grimes spoke recently at the Ohio Beef Expo, sponsored by the Ohio Cattlemen's Association. The event, in its 25 year, is the single largest event in the state devoted to cattle producers.
He said the overall outlook for U.S. beef is good for the next few years, with trade with Canada, Mexico, Japan and South Korea remaining strong. In addition, the rise in the growth of upscale hamburger chains has led to increased demand for higher-quality beef.
But Grimes cautioned that rising consumer costs, including gasoline prices, could influence spending.
"So we have a home for our product, but challenges are there," he said. "The biggest concern is pricing ourselves out of the market. Could the prices get so high that the consumer is going to push back?"
While that hasn't happened yet, Grimes said, it could.
"Who knows?" he said. "If gas prices go over $4 a gallon, thatís going to have a big effect on consumer spending because of concerns about disposable income. Will they be able to afford the higher-priced steaks?"
Part of the issue is that the country's beef supply is tight right now, with U.S. producers having the smallest cow herds nationwide since the 1950s, Grimes said. That's due in part to drought in the Southwest and higher-than-average export sales.
With 1.27 million head of cattle, of which about 25 percent are dairy cows, Ohio ranks 16th nationwide in beef operations, according to the Ohio Beef Council. The state's beef industry is valued at $1.3 billion and produces nearly 500 million pounds of beef each year.
"Looking from the outside in, sale prices are very good, which is very much a function of supply and demand," Grimes said. "We have fewer cows, export sales have been record-high, and domestic demand has been solid."
As a result, producers are trying to get as many live calves out of cows now as they can, he said. This has led producers to place more emphasis on fertility, calving ease and watching feed costs.
Grimes works on beef cattle research, including beef reproduction, new synchronization systems, artificial insemination, alternative forages, and ways to supplement production shortcomings for the year.
"One way producers are trimming feed costs is by trying to do as much with grazing as we can to minimize the use of harvested forages," he said. "Anytime you let the cow do the harvesting, it's more economical.
"The equipment costs associated with hay production can result in higher-priced forages for a small producer."
Demand for corn has also increased significantly, as 2011 was the first year the amount of corn used for ethanol production equaled the amount used for feed production, Grimes said.
"That is an interesting dynamic which helped to drive up prices for feedstuffs," he said.
An issue that has recently hurt beef prices is the publicity surrounding lean finely textured beef, also known as "pink slime."
While Grimes said the process used to produce LFTB has been used for years to safely remove fat from beef trimmings, the publicity has resulted in prices for 50 percent lean trimmings plummeting to nearly half the value seen in early March. The issue also has contributed to a decline in fed cattle prices.