May 2, 1996 in Nation/World

Beef Market Turns Bearish Rising Cost Of Feed, Low Beef Prices Put Cattle Ranchers In A Bind

Grayden Jones Staff writer
 

Fearing a tumble in cattle prices, Greenacres ranchers Del and Kathleen Carstens last fall sold two of their three steer calves for $575 each.

They learned the wisdom of that decision in March when they returned to market to sell the third steer, a plump animal that had put on another 300 pounds.

It fetched a pathetic $475.

“Anymore, the more animals you got, the less money you’re making,” Kathleen Carstens said.

Pounded by a series of ill-timed events, Inland Northwest cattle ranchers and feedlot operators are taking a financial bath from skyrocketing feed prices, years of overproduction and publicity about Britain’s “Mad Cow” disease.

While the Clinton administration’s offer Tuesday to accelerate purchase of beef for school lunches will help, the crisis is far from over.

Farmers are being hammered on both sides - paying record high prices for feed while receiving the lowest price in 10 years for their cattle.

A Midwest drought threatens to exacerbate the situation by delaying spring planting and further depleting corn stocks. The grain shortage increases the cost of business for feedlots who, in turn, compensate by bidding less for farmers’ cattle.

So unless demand for beef picks up here or abroad, prices paid to farmers likely won’t rise any time soon.

Ranchers, who manage the nation’s 103 million cattle, are producing 7 percent more beef than they did a year ago, according to Cattle Fax, a Denver-based research firm. That’s a trend that won’t reverse itself until more farmers slaughter their herds and bail out of an unprofitable business.

“We’re in bad trouble,” said veteran cattleman Jim Seabeck, who also is president of the Stockland Livestock Exchange in Spokane. “There’s going to be a lot of people go broke.”

Ironically, the same conditions that are undermining cattle prices are generating the highest prices in 20 years for wheat farmers in the Inland Northwest, one of the few U.S. regions where weather conditions have been favorable. Grain merchants have paid up to $6 a bushel for Northwest soft white wheat, which is riding the wake of a bull market for increasingly scarce Midwest grain.

Another bright spot in the cattle crisis should be bargain beef prices for consumers.

But it’s not. Slaughterhouses and supermarkets have been slow to pass on the savings, said Tom Brink, Cattle-Fax research director.

Brink said the average retail price of beef dipped 5 percent in the past year - from $2.65 per pound to $2.52. Yet the price paid to feedlots for cows headed to slaughter sank 17 percent.

“The bottom line is that their (slaughterhouses and supermarkets) profit margins on beef are ever wider,” Brink said. “The positive thing is that demand is good enough that retailers apparently don’t have to drop their prices proportionately.”

The cattle industry isn’t the only one hurting from high grain prices. Bakers and food processors say by midsummer they’ll likely raise prices of everything from breakfast cereal to pasta to cover the cost of flour.

“It’ll affect all bakery products in some form or another,” said John Rader, executive vice president at United States Bakery Inc. in Portland, which owns Snyder’s Bakery in Spokane and three other bakeries. “It’s got everybody worried.”

Economists for months have scoffed at the suggestion that near-record wheat and corn prices will trigger higher inflation rates. They argue that food only accounts for 16 percent of the consumer price index and the farmer’s share of retail price of breads and cereals is 9 percent. The rest is packaging, distribution and profit.

But for those counting their pennies, even small change can make a difference.

Food prices were up 4.5 percent in the first quarter of 1996, according to the American Farm Bureau Federation in Chicago. That means a grocery cart of food that cost $50 at Thanksgiving now costs $52.25, the bureau said.

“It’s scary,” said Richard Clemson, president of Pasta USA in North Spokane. “Late plantings. Drought. High prices. There’s just a lot of unknowns.”

, DataTimes ILLUSTRATION: Photo


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