Cattle producers have come through an incredible time over the past few years—with the aftermath of the August 2019 Tyson fire and the COVID-19 pandemic in 2020, according to Randy Blach, CattleFax CEO.
Events like these have had a major influence on the cattle business.
“So when you think about these black swans that we’ve had to navigate through, we’re still dealing with some of the aftermath of those events,” he said.
Blach presented with colleagues Kevin Good and Mike Murphy and weather expert Art Douglas at the virtual National Cattlemen’s Beef Association Reboot event Feb. 24.
Cattle on feed and those set to be slaughtered backed up in 2020, but Blach said processing is back on pace, and there’s record tonnage going through the system.
“That’s a testament these markets are still underperforming relative to the potential that’s out front,” he said. “The markets have had a nice recovery from where they were back in here at the summer lows of 2020, when we were selling cattle at $95. We’re now in here at $114.”
There have been record production levels, something the beef industry hasn’t really experienced. This might be what’s holding the beef industry back to some degree, he thinks. There’s been progress in getting the back logged cattle harvested, but “we’re still not where we want to be.”
Impact of weather during February into March can already be seen and it could shave some tonnage off the markets, but Blach’s not worried.
“Bottom line is we still have plenty of cattle to harvest,” he said.
Beef demand growth has added more than $250 a head to the value of fed cattle over the course of the last several years. Retail meat sales have been hammered during the spring and fall because of limited capacities. The total meat volume was up 10% in 2020 at retail. The total dollar increase of retail was up 18%, or nearly $13 billion, according to Blach.
As well, the beef share of spending was up in 2020 at retail, growing nearly $6 billion. Blach sees the state of the industry as one that’s driven by the consumer.
“If you look at our industry today the consumer balance sheet is in the strongest position it has been in since the early 2000s,” he said. “We’ve seen unprecedented amounts of savings. We’re up nearly $2 trillion and when the economy opens back up job markets going to improve and people are going to want to spend money.”
The increased household net worth and GDP growth should bode well for beef demand going forward, Blach expects. Also, agricultural loan repayment rates are up, and some have paid down debt with the government funding.
Those who have been having “major repayment problems” are at the lowest levels they’ve been since 2014.
“All of that tells you the economic landscape for agriculture is stronger. Land values are increasing,” he said. “We’re now in a situation where we’re going to see global demand for proteins, grain, fuel, energy—all those things it creeps up.”
Blach expects it to be “a nice run for the agricultural industries” over the next three or four years.
Beef demand
When it comes to beef demand, Kevin Good, CattleFax vice president of industry relations and analysis, questions what the big driver is from a long-term perspective.
“Frankly, I think we just sit back and take a look at what we produce,” he said. “We’ve got a better product than we had 10 and 15 years ago and we’ve got a better product compared to our competition. The price spreads, the dollars consumers are willing to spend will really drive that message home.”
The quality of the product has improved because of genetic improvement, thus the days on feed are less and the combination of the two creates more Choice and Prime cuts over time.
“That’s what’s driving demand,” he said. “The dollars are flowing back into those right type of cattle. We will see that trend continue.”
And at the same time exports are coming in, Good is reminded how important they are.
“But if you talk about what it means as a percentage of the fed steer value, it’s roughly about 20% over the last three to four years, that basically is back on a percentage basis to those pre-COVID, or those pre-BSE years,” he said. “So, we have to recognize that trade issues are extremely important as we go forward, as they’ve been in the past.”
For the remainder of the year, from a long-term perspective, Good is looking at the trend from a beef price standpoint. It’s been at 4% over time. Last year the cattle feeder received the lowest percentage on record.
“The real message is when we think about price discovery, short to intermediate term really, it’s centered around leverage,” Good said. “There’s plenty of dollars in the system. How those dollars are divvied up is really the challenge for the cattle feeder, and therefore, for the cattle producer.”
Another segment to consider is Utility cows. They’ve trended higher for two years because of stronger trimmings or hamburger demand and that has been a big driver. He sees the next 3 or 4 years being stronger for cow slaughter.
“Keep your demand in check—Utility cow values can be a bigger piece of our paycheck for a cow-calf producer as we go forward,” he said. Kylene Scott can be reached at 620-227-1804 or [email protected].
