A Rabobank research paper analyzes the headwinds cattle producers face in rebuilding the cattle herd moving forward.
At the 2023 NCBA Cattle Industry Convention in New Orleans, Lance Zimmerman- Rabobank Animal Protein Senior Analyst, explains the report.
“We released a research paper right ahead of convention, Not So Fast is the title of it. We just talked through these different headwinds, the challenges that are facing this next rebuild. I had a producer joke with me that cattle cycles last ten years but cattle producer memories only lasts seven. And so, when you think back to 14 and 15, the reason it was explosive is because the consumer paid for it. We had explosive demand at the retail segment per capita. Beef, pork and poultry supplies were 40 pounds smaller than where they are today. So, we had a consumer that was starved for all things animal protein. Today, they have an abundance of protein and choices, so yes, supplies are declining, but the upward price responses that we need to fuel the next expansion and get that passed through from high beef prices down to high cattle prices, isn’t as clear.”
He says for the rebuild to occur, the weather pattern needs to change, transitioning out of La Nina to El Nino.
“The first thing we got to do is look at green grass. And let’s talk about weather for just a second. Everybody said we’re only going to new and more neutral kind of holding pattern and that exists today through basically late spring early summer. Then we have the prospect of being more in a cooler wetter, cycle towards the end of the year. Well, that’s already too late for most of our cow-calf producers who calve in this time window, send out to pasture in the spring. It means pretty suspect pasture conditions are probably going to persist through most of this spring and early summer period, which means we’re going to probably be in another liquidation phase, maybe not as strong as we were this past year, but still liquidation phase this year, maybe into the early part of 2024 as well.”
And, input costs, such as feed, are an issue as well.
“You think about those high feed grain prices, they’re a benefit to our grain farmers. And obviously the first big surge we saw in those especially when we talk about corn and beans came with the Renewable Fuel Standard back in 2008, and that supported the corn market as the ethanol industry bloomed. We’re kind of facing the second version of that today with the demand for renewable diesel. And if you have $15 beans for a nice round number, you’re going to have to keep corn prices high just to keep acreage comparable. And when you look at our feed grain space for livestock feed, we’ve become very dependent on corn. And so, are we moving that demand curve out into the right as we like to say as economists where even if we rebuild supplies, prices stay elevated? That’s going to keep a lid on cattle feeder profitability and in turn, potentially keep a lid on how many dollars they can pass down to the stocker operator, the backgrounder, the cow-calf guy.”
For producers, Zimmerman’s advice is to know your breakeven.
“Especially as a cow calf segment. A lot of times we just kind of do some offhand cocktail napkin math, maybe talk through it at the kitchen table. Sharpen your pencil, get out a spreadsheet, if you don’t know how to use a spreadsheet, ask somebody in the family to help you. Really whittle down the cost side of the equation, understand where you’re at. Because if you want to be retaining heifers, if you want to be buying some cows back, you need to know what your cost structure is. I always tell guys that want to get in the cow business, you’re married to your spouse, let’s not be married to cows too. And so, let’s figure that out first, and then if we can do that, we can navigate the next steps, because we got interest rates today also incredibly high. And so, know your cost now so that you can figure out what you can pay going forward to fuel that next rebuild, which is probably still in earnest two years away, but it gives you a chance to plan and anticipate for it.”
