Costs for Illinois’ beef industry outpace returns

Cattle is auctioned off at Boswell Livestock Auction in Boswell, Indiana, September 13, 2016. Boswell is a creditor of third-generation farmer Matt Gibson. REUTERS/Jim Young

The outlook appears to be trending downward for Illinois’ cattle-producing economy, as farmers wrap up what will be likely their second straight year with costs outpacing revenues.

This decline has Mark Doherty, senior economist at the Illinois Farm Business Farm Management (FBFM) Association, discussing the end of an era of low feed costs — and a new reality of fallen cattle prices.

“We are in a cycle on cattle prices,” Doherty said. “We had a few profitable years. Beef producers were once making over 100 dollars a cow, but now we are coming down to narrower margins. We have had some fall in supply costs … such as corn. But the cost of production has not fallen as fast as prices. Basically, we are into a cycle of increasing supply and falling prices.”

According to data released by the FBFM Association, expenses in 2015 for beef-feeding enterprises in Illinois exceeded total returns by $45.29 per 100 pounds of beef produced on member farms across the state. Feed-related costs dropped slightly, but non-feed costs like maintenance and power expenses rose to cut into profits.

The outlook for 2017 is not expected to improve.

Doherty thinks cattle producers have seen a revenue decrease coming for several years due to a long cattle lifecycle, which has caused a buildup of inventory and a situation where supply is outstripping demand.

“They knew these low prices were on the way,” he said. “What makes beef different and unique is the length of time it takes a cow to grow up and be slaughtered and processed. So, because of that time, you end up with these price cycles in beef production you would not see in other livestock, such as chickens, which have a short life.”

Doherty and the FBFM contend that the forecast for the immediate future of the beef-producing industry in Illinois is one of cost cutting and expense lowering.

“The expectation is one of reduced margins, cost cutting and financial stress for some of these producers,” he said. “A time when they are going to have to be more attentive to lowering their costs of productions as best they can.”

Grain farmers often use a herd of feeder cattle or other livestock as a supplement to their farm income to hedge against low crop yields. The combination of lowering crop prices and lowering cattle values will cut into the total operational profit margin of a farm.

–Illinois News Network

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