The beef industry will continue to experience the effect of the downsizing of the beef cow herd and the consequent excess feedlot and packing plant capacity this year, and "this industry is going to consolidate," according to Randy Blach, chief executive officer of CattleFax.
A smaller cow herd and feeder supply caused fed cattle production to decrease 1.6 million head from 2008 to 2012, and production will decrease another 470,000 head this year alone, he said.
Because of this, he said feedlots and plants are having problems operating efficiently, with feedlots having 25-30% excess capacity and plants having 15% excess capacity.
Furthermore, he said feedlots are "commanding" more and more of the beef prices, noting that the fed steer price as a percent of the beef cutout was higher last year than in the last 12 years.
Nevertheless, feedlots are losing money, as are packers and as are retailers on their beef programs, he said. "We are pushing up against a ceiling," he said, and something has to give. "People downstream need to make money or 'cry uncle,'" he said.
Indeed, "the first domino has already fallen," he said in reference to the decision by Cargill Inc. to close a major plant in Plainview, Texas (Feedstuffs, Jan. 21).
On another issue, Blach said the cash cattle market is becoming "thinner and thinner," pointing to how the cash cattle trade has decreased from 52.1% of the market just seven years ago to 26.0% today, with alternative marketing options increasing from 47.9% of the market then to 74.0% today.
Blach delivered his remarks to the CattleFax market outlook at the Cattle Industry Annual Convention & Trade Show in Tampa, Fla., Feb. 8.