The economics of production agriculture are a lot different than in most industries.
You would expect that when production costs increase on beef, for example, that those costs would be passed right on through to consumers, but farmers and ranchers don’t set the price of the animals and crops that they produce.
When their product is ready for market, they get whatever price the buyer is willing to pay for it, and when corn prices are high, feed lots pay less for calves.
David Anderson is an agricultural economist with Texas A&M Agrilife Extension.
“In that feeding process, the calves themselves, the feeder cattle, are one input among a bunch of inputs in that process with the other big one being feed, corn, soybean meal, whatever makes up that diet.”
Anderson noted that feed costs have sky rocketed in the last few years.
“So feed costs go up, well if I’m going to make money, I’ve got to pay less for those calves if I can, so what happens is feed costs go up, and so because they know they’re going to make less money on them, or not make any money at all, I’m going to buy fewer of them, fewer of those calves, or I’m going to pay less for the calves that I do buy.”
When feed prices go up, calf prices come down.
“Over a long period of time, calf prices are lower, ranchers don’t make as much money, or lose money, so they keep fewer cows, and so we have fewer calves born, and then there’s fewer supplies, there’s a smaller supply of calves on the market. So those tighter supplies then, result in higher calf prices.”
The point being, higher feed costs impact the rancher long before there’s any impact on the consumer.
“From the time the cow is bred, the cow has a calf, the calf grows, the calf is born, the calf hits that final weight at say eighteen months old, there’s a several year process in this, which means that just biology tells us there’s a long time lag from the effects of higher costs to showing up as higher hamburger prices, higher steak prices.”