What do global economics, world trade negotiations and currency exchange rates have to do with a cattleman’s profit prospects?
Well, according to Gregg Doud, chief economist for the National Cattlemen’s Beef Association, they are critical.
“Add those things to the fact that the unemployment rate is skyrocketing and the housing market is a disaster of mass proportions and, folks, we have a problem,” Doud told producers at the recent Beef Cattlemen’s Conference held in Monett, Mo. “We won’t pull out of this thing until there are some changes made.”
General economic woes impact how American consumers spend their money and that includes beef expenditures.
“Fifty percent of beef is consumed away from home,” he explained. “When people don’t have a job they don’t go out to eat.”
The result is, according to Doud, that the industry is “sucking wind” on high-value cuts.
“On both coasts the economy is poor, it is a wreck and we can’t sell steaks,” he said.
Doud reminded producers that the beef industry is driven by consumers who eat at steakhouses.
“When disposable incomes are down and consumer confidence isn’t as strong as it once was, cattle prices take a hit. In addition to a poor economic status, home foreclosures and Americans losing their jobs, many banks are not loaning money.
“Banks are sitting on money right now because they know there is still a pile of bad debt out there,” Doud explained.
He reminded producers not to count their banker out just yet, however.
“We lost $7 billion feeding cattle since 2007 and we are still here,” he said. “The reason we are still here is because our bankers stuck with us. This is not your father’s Great Depression, folks.”
And if all that isn’t enough to start putting fear in today’s cattle producers, Doud added that globally markets aren’t all that much better.
“The Australian cattle industry is dying because the exchange rate is fairly high right now,” he said. “We are paying 11 percent more for Australian cattle but the Australian rancher is getting 22 percent less for his cattle due to the exchange rate.”
Important importers of U.S. beef, including Russia, South Korea, Canada, Mexico and the European Union nations, saw the same sort of currency problems in ‘08.
“When the South Korean housewife sees our product costing 50 percent more, it is hard on business for us,”he explained. “Especially when we didn’t see a penny more as producers.”
In Mexico, a soft economy has also been costly for the U.S. beef industry, according to Doud.
“We haven’t seen the lower currency value in Mexico, however, they are struggling,” he said.
According to him, U.S. cattlemen lost 25 percent of their sales in Mexico, consisting mainly of hearts, livers, tongues and tripe.
“We lost $250 million worth of that business because the lowest 1/3 of their households just can’t afford it.”
So, it is easy to see that troubled economic times in the United States are not the only contributing factor to today’s beef industry. Whether the economic troubles are domestic or international, they have a dramatic impact on where the American beef industry is and where it is heading.
Even though Doud doesn’t paint a very pretty picture, he assured producers that everything is not doom and gloom in the beef industry.
“2010 is a new year and we should see a nice recovery in exports,” he explained.
“In order for this thing to turn around it is going to take a lot of things, not only here, but in other countries as well,” he explained.
And on the homefront, the general U.S. economy and beef demand must rebound before things get better, Doud concluded.
Area Farm & Ranch News
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Gregg Doud
The beef cattle economic picture
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