Economic Factors that Shape the United States Beef Industry - Essay Example

University

Introduction

The beef industry is one of the most value added enterprise in the United States agricultural sector. Million farms annually benefit from the sales of the cattle and the calves, making the beef sector the largest enterprise in agriculture. Moreover, the beef industry contributes directly and indirectly to the economy of the United States through billions of economic output and employment opportunities. In 2000, the United States beef industry produced over 36.2 million head of cattle and processed about 28.1 million head of fed cattle. Other than cattle on feedlots, the 97 million head of US inventory was also contributed by the young calves, bulls, stocker cattle awaiting placement in the feedlot, replacement heifers, and beef cows and calves. However, the inventory in all the classes of cattle has been experiencing a declining trend which is cyclical in nature. The decline in production of beef products based on the cyclical nature of abundant and low supply affects the profitability of beef products as the prices fluctuate depending on the forces of demand and supply. The economic factors that shape the beef industry every year determine the grower profitability and cost and consumption activity of substitute products such as pork and poultry.

The causes of the reduction in cattle numbers that reduced beef production and resulted in record beef prices

The reduction in the cattle numbers that resulted in reduced beef production was caused by the cattle cycles, a phenomena that is highly prevalent in the United States and largely affects the prices of beef. These cycles are caused by cattle reproduction biology coupled with the expectations or price fluctuations. When the prices of beef products are expected to rise in the near future, the producers respond by producing a relatively greater number of cattle compared to when the price is expected to decline. However, since the production of new cattle takes some time to accomplish, even the response of the beef producers to the market takes some time. this is because the producers need to not only withhold some more female cattle from the market for breeding, but also because the cattle require at least two years in order to develop to breeding maturity. For the two consecutive years, the production capacity of the beef industry declines substantially before the inventory increases, increasing the supply, and consequently leading to a decline in the prices (Dyck and Kenneth, 2003).

The decline in the reduction of cattle numbers can also be attributed to vulnerability to weather. The beef industry is prone to changes in weather conditions which influence the imports/exports, grain prices, demand and cropping (Aadland, 2000). One of the greatest factors that influence the cattle cycle is drought, which leads to a decline in the available pasture and cattle producers are forced to either feed their animals with supplemented forages, or reduce the size of the heard so as to ensure effective production from the healthy cattle. During such times, the producers are forced to sell their animals at a relatively lower price since they are usually lighter than the average animals and younger (Swigert, 2002).

Other than the factors that are specific to the cattle sector, the number of cattle heads is also affected by the changing alternations in technological innovations and industry structure in the recent times. For instance, the cropping programs have been set up in many rural areas to provide farmers with incentives to either utilize their farms for improved pastures or use them as cropland rather than rearing of animals. According to research conducted by the USDA, (2014), there is a strong link between the reduction in the total number of cattle heads and the increase in crop harvest. Moreover, changes in demand of cattle products have also forced many farmers to shift form cattle expansion to liquidation.

The impact on grower profitability

The impact of grower profitability from the reduction of the head of cattle in the beef industry can be attributed to diverse, numerous and mostly interconnected factors. When the heads of cattle reduce, the profitability of the farmers reduce significantly depending on the proportion of the cattle that has been reduced. However, it is prudent to note that the extent to which the grower profitability negatively affects the farmers is based on the causes of the decline in the head of cattle (Carter, 2010) For instance, when the heads of cattle decline as a result of weather and other natural causes such as diseases and floods, the grower profitability reduces significantly and the farmers face a period of reduced productivity and reduced earnings. However, when the decline in the number of cattle is caused by the changes in land use where the farmers get the incentive to shift from cattle production to cropping, then the grower profitability is highly dependent on the output of the crops and the prices in the market. In this case, the reduction in cattle heads can lead to an increase in the overall grower profitability.

The grower profitability is also affected by the government, just like any other business in the United States. This occurs due to direct or indirect government regulations and policies that affect the profitability of beef herds (Brokaw, 2005). This not only affects the farmers but also the commercial beef producers who experience a substantial reduction in their profit margins. The influence of the government of grower profitability is diverse and complex. According to the National Cattlemen’s Beef Association, the most prominent areas that the government impacts heavily on grower profitability is in financial credit, taxation, national resource management, international trade, food safety and nutrition, federal lands, farm policy, cattle markets and animal health (Government Affairs , 2011). The government can also impact on grower profitability through trade policies that control the extent to which beef imports enter the U.S market and influence the prices of the beef products. In some parts of the United States, especially in the Western states, trade policies either expose or protect the profitability of the beef producers (Adams, 2010).

The response by pork and poultry

The reduction in the number of heads of cattle in the beef industry has attracted the response of the pork and poultry through increased production to cover the gap in the market by the unmet supply by beef production. This has also led to large shifts in demand from beef consumption to demand for pork and poultry products. Prior to 1970s, the increasing rise in consumer income due to the growth in the US economy led to high demand for beef products. At the time, there was a high supply of beef to meet the demand in the market. However, the growing demand was alter characterized by a decline in production of beef products due to the cattle cycles and the consumers had to look for substitute products to satisfy the growing demand. As such, the pork and poultry industry grew as a major substitute sector for beef products.

The prices for pork and poultry products have also led to an increase in their response at substitutes for beef products. Despite the fact that beef is considered to be quality meat compared pork and poultry, they have been adopted by the market as important substitutes. Some of the factors that have contributed to the rise in the demand for pork and poultry products is attributed to the changing lifestyles where many consumers are shifting towards consuming meat products that are easy and convenient to prepare such as pork and poultry. In this case, the demand for pork and poultry benefits while that of beef suffers.

The impact of high beef prices on consumption

High beef prices had had an impact on the beef consumption in the USA, this is because prices influence both the demand and supply of the commodity. High beef prices prompted people to seek alternatives forms of meat such as poultry and pork. From an economic perspective, consumer income is low and cannot sustain the high beef prices. There are previous research that have asserted the importance of consumer income and personal consumption expenditure on thee demand. High prices of beef income contained the consumer’s disposable income, this is because the income of the consumer doesn’t change despite the increase in the prices of commodities such as beef. The fact that beef can be substituted with other commodities make it very easy for consumer to avoid it if thee prices are high. The consumption of beef was thus affected and there was adversely decrease in the amount of beef that Americans took. Pork and poultry products that had lower prices as compared to beef were the best substitute to beef.

When a commodity has a close substitute, for instance beef and other types of meat such as pork, its demand is not is not affected by raise in prices for the other substitutes. Increase in income is the main factor that can be asserted to increase the consumption of beef, and since there were no economic indicators that indicate that there was a general increase in the consumers’ income, the consumption of beef decreases. The importance of consumer income and the personal consumption that can explain the consumption of beef from a demand perspective. When the income of the beef consumers increases, the demand for beef is bound to increase, and this is because consumers tend to increase their expenditure as income rises (Tonsor, Mintert, and Schroeder, 2010). Growth of disposable income has the propensity to enhance the growth in economy of a country. When the disposable income increases the consumption of beef is bound to increase, and when the disposable income decreases the consumption of beef also. Decrease is consumption of beef also implies that there will be excess of beef in the country, which is as a result of decrease in demand. High beef prices can thus be said to have a negative effect to the beef producers since they make low sales that is associated to the low consumption. However, the beef sellers can opt maintain the beef prices but reduce the quantity.

The recent trend in cattle numbers and beef production

The livestock sector has been argued to be very dynamic in both developing and developed countries. In developing countries it has been found that the demand for livestock is very as compare to developed countries like the USA. Beef production in the USA is stagnating, and this is mainly because of the high production cost that have increased the prices of cattle products. The changes in demand for cattle in USA is mainly because of urbanization, income growth, and human population growth (Thornton, 2010). Urbanization can be said to be the main reason as to why beef production in there is decreasing in the developed countries. Recently, science and technology has also been found to be increase beef production and the animal numbers across the globe. The main factor that has been asserted influence the future cattle numbers and beef production is that these animals will be competing for natural resources, which will make production very difficult to sustain. The main natural resources that will be in contention include water and land, it should be noted that beef production and cattle rearing require huge tracks of land and a lot of water is consumed by the animals. The competition is also a worrying trend especially due to the fact that it is between food and feed and that they are operating in a carbon-constrained economy.

There is also a new trend in relation to the manner that cattle are reared, and this new developments are in breeding, nutrition, and animal health. Technology has made it possible to ascertain the best from of animal numbers, and this through the realization that is associated with efficiency and genetics gains. The use of livestock breeding techniques have been traditionally to increase the number of live sock, however in the present times there is technology deployed makes the breeding more efficient increasing the number of cattle rapidly (Kassam, 2009). The change in animal food is also an aspect that characterizes this modern times, and the feeds are very efficient in developing and making the cattle mature fast. The other aspect is that cattle numbers and beef production are been currently affected by carbon constraints as well as environmental and animal welfare legislation. However, there is a way that this negative current trends can be mitigated in order to enhance increase in the cattle numbers and beef production. The manner in which that cattle numbers and beef production can be moderated from demand perspective is to ensure that social-economic factors are moderated, such as human health issues and social values (Thornton, 2010).

How the outlook for production, prices, and profitability have changed in us beef sector

The outlook for production, prices, and profitability has definitely changed. This is because the techniques that were used in yester years in the rearing and production of cattle is very different, and this can be attributed to the changes in technology in production of beef. Profitability is mainly affected by the outlook of the micro and macro-economic situation at that given time. The profitability of will mainly be influenced by consumers’ disposable income, and the method of production. For instance in the cost per unit that is required to rear one cattle deceases, then the profitability of the cattle will be enhanced. On the other hand, when the disposable income of consumers decreases the consumption of beef also decreases, however when the disposable income increases the demand for beef will increase enhancing profitability. Therefore, the prices of beef are mainly affected by the forces of demand and supply. When the supply for beef is high demand tend to be low, and vice versa. Production as reviewed is mainly affected and changes depending on the type of technology applied, technology in the current times can be asserted to influence and enhance the production of cattle and production of beef

Conclusion

This paper has critically assessed the economic factors that shape the United States beef industry. The macro-economic factors have been assessed and the manner that they affect the beef industry in the united starts. The forces of demand and supply are very vital in determining the consumption of beef. It is also advisable that beef producers should devise ways that minimize production cost, this is because if beef prices are too high, then then consumers find another alternative from pork and poultry. The current and future trends of beef production and the sustainability of the cattle sector. Therefore, the factors that shape the United States beef industry are very dynamic, and that slight changes are prone to affect the prices of cattle rearing and beef production.