Why 2024 was such a challenge for the wagyu cattle farming industry
Table of Contents
The Wagyu cattle industry, long celebrated for its premium-quality, marbled beef, endured one of its most difficult years in 2024. Already facing a high-cost operating environment, Wagyu producers were hit hard by compounding pressures, including historic lows in U.S. cattle inventory, rising input costs, and shifting market dynamics.
These factors culminated in widespread closures and significant contraction within the industry, casting doubt on the future viability of many Wagyu operations.
Rising Costs and Shrinking Margins
The rising cost of feed in the Wagyu industry is closely tied to the fluctuations in the price and availability of key ingredients like corn. In its November 2024 Crop Production report, the USDA’s National Agricultural Statistics Service (NASS) revised its forecast for U.S. corn production, lowering it by 60 million bushels to 15.1 billion bushels. This decrease in production is attributed to a slight drop in yields, from an expected 183.8 bushels per acre to 183.1 bushels per acre. While some states, like Indiana, North Dakota, and Ohio, saw yield increases that partially offset the overall decline, the reduced production still leads to a lower total supply estimate of 16.9 billion bushels, although it remains nearly 200 million bushels higher than the previous year’s levels.
Despite this higher overall supply, the reduced production forecast is still a concern for livestock producers, including those in the Wagyu industry. U.S. corn exports remain strong, and as a result, demand for U.S. corn continues to be high, with export volumes in September 2024 nearly 35% higher than the previous year. This strong export demand could further tighten the domestic corn supply, driving up prices for livestock producers who rely heavily on corn as a primary feed source.Moreover, the U.S. Department of Agriculture (USDA) has projected a significant increase in corn use for ethanol production, further competing with the livestock feed market. This increase in demand for corn from the ethanol sector could exacerbate feed price volatility, making it more challenging for Wagyu producers to maintain cost-effective feeding practices. Despite a slight drop in ending stocks for 2024/25, with U.S. corn supplies forecasted to remain slightly above last year’s levels, the overall market dynamics still point to elevated feed costs.
For Wagyu producers, these feed cost increases are particularly concerning. The Wagyu industry relies on high-quality feed to produce the marbling and tenderness that define premium beef. Wagyu farmers face significant financial strain with the cost of corn and other feed ingredients rising due to reduced supplies and strong export demand. As feed costs increase, the industry must find ways to mitigate these pressures through more efficient feeding practices, alternative feed sources, or innovations in production methods to maintain product quality while managing costs. The USDA’s forecast of a season-average price of $4.10 per bushel for corn in 2024/25 suggests that feed prices will remain elevated, further squeezing the profit margins of Wagyu producers.
Despite record-high beef prices, Wagyu farmers’ profit margins have been squeezed to unsustainable levels. The primary issue is that Wagyu production is inherently expensive due to the need for extended feeding periods, specialized care, and higher-quality feed. While conventional beef producers can take advantage of rising prices with lower production costs, Wagyu farmers are unable to reap the same benefits.
A Historic Contraction in Cattle Supply
The challenges facing the Wagyu industry were rooted in an unprecedented contraction in the U.S. cattle inventory, which dropped to 87.2 million head, the lowest level since 1951. This decline was driven by years of drought, high feed costs, and the liquidation of breeding herds, all of which severely disrupted the delicate supply chain that underpins Wagyu production.
1) Record-Low Calf Crop: With fewer cows and heifers available for breeding, the 2024 calf crop hit historic lows. For Wagyu producers, whose operations depend on the long-term breeding of fullblood or crossbred Wagyu, the reduced availability of calves made herd expansion nearly impossible.
2) Feedlot Competition: Wagyu heifers, like other cattle, were increasingly diverted to feedlots for slaughter rather than being retained for breeding. This trend eroded the already limited supply of breeding stock, further constraining the ability of Wagyu farmers to rebuild herds.
As the U.S. cattle herd continues to decline forecasted to fall further in 2024 the Wagyu sector faced a dire shortage of breeding stock. According to the Ag Economists’ survey, beef cow supplies were expected to decline further, exacerbating the scarcity of calves for production. The broader reduction in national cattle inventories, combined with the increased diversion of heifers to feedlots for immediate slaughter rather than breeding, contributed to the tight supply of Wagyu cattle. This contraction in supply placed additional stress on Wagyu farmers, who rely on breeding stock to maintain and expand their herds over the long term.
Even as cattle prices soared, conventional beef producers with lower operating costs captured much of the price increase, leaving Wagyu farmers squeezed between high production expenses and stagnant market returns. The overall market sentiment for U.S. agriculture reflected this volatility, with farm income projections falling from the record levels seen in 2022 to a more modest forecast for 2024 around $120 billion, down from over $160 billion. For Wagyu producers, many of whom operate with higher costs and longer production cycles, these figures were a stark reminder of the financial pressures they faced.
Widespread Farm Closures and Market Exits
By the end of 2024, the combined pressures of rising costs, declining herd sizes, and weakening demand had forced many Wagyu producers, particularly small and mid-sized operations, to shut down.
1) Geographic Disparities: The closures were most pronounced in regions hardest hit by drought, such as Texas and the Southeastern U.S., where input costs and environmental pressures were insurmountable. Even in more favorable areas like Oklahoma, historically low heifer retention and high feedlot placements made it difficult for Wagyu producers to sustain operations.
2) Industry Contraction: Analysts estimate that over 25% of small and mid-sized Wagyu farms in the U.S. permanently ceased operations in 2024, marking one of the most significant contractions in the industry’s history.
The Path Forward: Prospects for Recovery
Despite the devastation, the Wagyu industry retains potential for recovery through strategic adaptation and innovation:
1) Sustainable Practices: Producers who invest in sustainable farming methods, such as rotational grazing and alternative feed sources, could lower costs and improve resilience against environmental and economic pressures.
2) Market Diversification: Expanding into niche markets, such as direct-to-consumer sales or emerging middle-class markets abroad, could stabilize revenues and reduce dependence on traditional distribution channels.
3.) Risk Management and Technology: Investments in herd management technology, market forecasting tools, and alternative business models will be critical to mitigating future risks.
4) Collaborative Models: Wagyu farmers may benefit from forming cooperatives to share resources, reduce costs, and improve market access.
Conclusion
Given the ongoing challenges in the Wagyu industry, producers may need to explore strategies to manage their risks and adapt to the changing market conditions. One potential avenue for resilience could involve diversifying income streams, such as focusing on alternative revenue sources like direct-to-consumer sales or premium product lines that cater to a more affluent market segment. Additionally, Wagyu producers may need to invest in cost-saving technologies, more efficient feeding practices, and enhanced herd management to offset rising costs.
Wagyu farmers may also need to consider restructuring their operations to make them more financially flexible in the face of volatile feed prices and fluctuating consumer demand. Exploring partnerships with other producers or even utilizing crop insurance programs could be ways to mitigate financial losses caused by rising input costs. Ultimately, adapting to the evolving economic landscape will be critical to the long-term survival and profitability of the Wagyu industry.
References
- https://www.ers.usda.gov/data-products/food-price-outlook/summary-findings/
- https://www.ers.usda.gov/topics/animal-products/cattle-beef/market-outlook/
- https://downloads.usda.library.cornell.edu/usda-esmis/files/g445cd121/6395z1622/st74fh665/LDP-M-365.pdf
- https://www.beefitswhatsfordinner.com/foodservice/menu-concepts-diner-insights/2024-beef-market-outlook
- https://www.thepress.co.nz/nz-news/350333541/farmers-lose-out-after-wagyu-company-diverts-funds
- https://www.globenewswire.com/news-release/2024/08/28/2936856/28124/en/Wagyu-Beef-Market-Report-2024.html
