Bull Market Fizzles Excess Supply Drives Down Beef Prices, Forces Cattle Ranchers To Scramble

Buford McDaniel, a Rose Lake, Idaho, rancher, came to Spokane last week to sell a few cattle, make a little money.

But when the bidding was over, McDaniel wondered if he was the one who got slaughtered.

“I knew prices were bad, but I didn’t know it was this bad,” McDaniel said as he collected receipts on his 11 cows at the Stockland Livestock Exchange. “This will be a loss today.”

After a remarkable stretch of seven profitable years, cattle ranchers suddenly have been bucked off a bull market into the dust of dried-up fortunes.

Feedlot operators, countering soaring feed grain prices brought on by Midwest flooding and strong demand, have dramatically lowered their bids for cattle they fatten up for the slaughterhouses. And ranchers, who have built up their herds on the strength of past prices, find themselves in a stampede of beef going to market.

“To cattle people, this is a stock market crash,” says Lisa Whitney, with the U.S. Department of Agriculture’s Livestock and Grain Market News Service in Moses Lake.

Live cattle prices at Stockland and eight other auction houses in the Inland Northwest are 20 percent to 35 percent below last year, Market News says. For a non-farmer, that would be similar to building a house for $100,000 and selling it a year or two later for $75,000.

The 1,800 animals sold last week at the Stockland grossed nearly $550,000. The same animals sold a year ago would have brought about $680,000, a 19 percent difference.

The crash affects 26,000 full- and part-time cattle farms in Washington and Idaho. Those farmers raise more than 3 million head combined, the Census Bureau says. Ranchers in both states generate more than $1.2 billion in annual sales.

Consumers may benefit from the cattle producers’ plight by enjoying lower prices at the butcher counter. Nearly every Spokane supermarket last week had steak on sale.

But meat prices have not dropped at anywhere near the same rate as cattle prices, says an industry research group that surveys 1,700 supermarkets each month.

Denver-based Cattle Fax says that consumers on average are paying 2 percent less for choice beef cuts this year than last. That’s a sliver of the 30 percent price cut taken by ranchers on some herds.

“The retailer is a price maker, we’re (cattle industry) the price taker,” said Bret Fox, research analyst for Cattle Fax. “Retailers only have to lower price a couple of percent to move the tonnage, whereas we’re forced to take a larger cut.”

So who’s pocketing the difference? One clue might be the astounding profits reported this year by the nation’s largest slaughterhouses.

IBP Inc., the giant Nebraska-based packing chain with a plant in Pasco, reported a 149 percent jump in profits to $137.7 million for the six-month period ended July 1, 1995.

Such eye-popping results led Sen. Tom Daschle and Rep. Tim Johnson, both of South Dakota, last month to call for a congressional investigation of possible price-fixing among major packers. USDA officials have been investigating the industry for three years.

Agribusiness analyst George Dahlman tracks IBP and other food processors for a Minneapolis-based stock brokerage, Piper Jaffray Inc. He says the processors’ recent profit taking makes up for several years when the companies paid a premium to farmers and feedlots for their cattle.

“Every time the processors’ margins go up, the accusations against them go up,” Dahlman says. “I hope they (cattle industry) say the same thing when prices are high and processors have to swallow the difference.”

Experts say ranchers are at the bottom of a cycle that occurs once a decade. Once herds thin out and grain prices stabilize, cattle prices should return to normal.

“When you’re in a period like this, you’ll see stringent culling,” says Ted Kerst, co-owner of the Stocklands. “A marginal cow is not paying her way.”

But it could be more than two years before the market turns. Forecasters say the current trough should continue for at least another year as grain prices remain high. Exports are strong, but not enough to empty out stockyards packed with cows.

“They say it’ll turn around by ‘98,” said Art Schmidt, a Spokane cattle buyer who was sitting ringside at the Stocklands last Monday. “I’m hoping for ‘97, but we haven’t a chance in ‘96.”

U.S. beef consumption has been waning for years, contributing to an oversupply of cattle. In the wake of medical reports, the E.coli hamburger poisonings and investigations of slaughterhouse practices, Americans have reduced annual beef consumption since 1983 from 74.1 pounds to 61.4 pounds, the USDA reports.

“If we could gain back the (consumption) loss we’ve experienced over the past decade, we might not have this cattle market problem right now,” says Patti Brumbach, executive director of the Seattle-based Washington Beef Commission, which promotes beef sales.

The problem could be seen last week in the faces of ranchers gathering at the Stocklands auction. Rimmed by natty cowboy hats and wrist-twitching bidders, the usually jovial ring was a study in angst. As the auctioneer sought higher bids, Schmidt explained why he’s not buying.

“If we thought prices were going up, four out of five of us would be buying,” he says. “I’d say that those who are strictly cattle producers are in trouble.”

A 30 percent jump in feed grain prices, large imports of Canadian beef and a poor outlook for the future has sent the cattle market in a downward spiral, says Schmidt, who brokers livestock to Midwest feedlots.

He worries that ranchers who depend solely on cattle soon may be forced out of business. Kerst, the Stockland’s owner, says he hasn’t heard of anyone forced out, yet.

A sudden drop in cattle prices can leave a financially weak producer in bankruptcy, or ruin the chances for young ranchers to pay off their debts, Schmidt says.

“We can’t raise cattle for what they’re selling for now,” says Schmidt, who keeps more than 200 cows at a ranch north of Kettle Falls, Wash. “We’re losing $100 a head.”

Don Jacobs, a Grant County cattleman and founder of Jake’s Meats in Quincy, says he needs to average 75 cents a pound to break even on his herd. He supplemented the poor cattle market this year by operating a feedlot and the store.

But many have no options. Squeezed by bankers to pay off debts, and unwilling to foot the bill for feeding cattle in the winter months, these ranchers are forced to sell part of their herd for whatever the market will bear.

It’s a frightening moment when the value of raising a cow for months or years is determined in 15 seconds inside the auction ring.

“I was thinking of selling my whole herd next year,” says McDaniel, the Rose Lake rancher. “But I think I’ll wait. I can’t see giving them all away.”

, DataTimes ILLUSTRATION: Color Photo; Graphic: Price per pound for cattle falls…