In today’s Beef Buzz, senior farm and ranch broadcaster Ron Hays continues to feature comments from a trio of cattle market economists — Dr. Derrell Peel, Don Close, and Nevil Speer — about packer margins, beef demand, and the biggest risks facing cattle producers during a recent panel discussion at the U.S. Meat Export Federation spring conference in Oklahoma City. You can go back and review earlier parts of their conversation and presentations on our Beef Buzz page.
Packers Feeling the Pressure — But Why?
One question centered on why packers have been unable to push boxed beef prices higher to improve margins. Speer responded to concerns about market manipulation, saying, “Well, I guess collusion is not working,” before adding, “They’re really bad at manipulating the markets — never lasts, right?”
Close said despite difficult margins, beef values remain incredibly strong when compared to a year ago. “I get that question daily,” Close said. “When you actually take time to look at the price and the price gain by item over a year ago, it’s smoking.” He pointed to gains across beef primals and continued consumer movement of product despite tighter supplies.
Speer added that the long-term investments being made by packing plants signal confidence in the future of the business. “Any packing plant you go to in the last couple of years, these packers just keep reinvesting money into their plants.” “They’re not scraping by — they are committed to this for the long run.”
Still, Speer warned producers not to assume the current business environment will last forever. “It can’t go on forever,” he said. “They’re going to work to try to do something different to grab margin and predictability and get out of the commodity noise.” He cautioned cattlemen to “be careful what you ask for,” warning future changes in the marketplace may influence producers in ways they do not like.
The Biggest Threat to the Cattle Business
When asked about the biggest threat facing the beef industry, Peel pointed squarely toward demand-side concerns. “The biggest threat comes from the demand side, at least near term,” Peel said. “Demand is incredibly strong, and I think it will stay strong.”
However, he cautioned that outside economic pressures could affect consumers’ ability to keep paying record prices for beef. “Consumer willingness and ability — if we mess up their ability bad enough, then they just flat can’t,” Peel said, pointing to things like gasoline prices and broader economic uncertainty.
Peel also tied uncertainty to the slow pace of herd rebuilding. “That’s also part of the reason producers are not aggressively chasing herd expansion yet,” he explained. “Mother Nature is limiting what they can do in a lot of cases, but uncertainty has become a really big part of the risk they’re facing.”
According to Peel, much of that uncertainty is external. “Most of that’s coming from the policy side or external factors,” he said. “It’s not so much inherent risk in the industry as it is external stuff.”
Protect the Equity
Speer closed with a warning and a recommendation for cattle producers operating in a historically high-value market. “There’s more equity at risk in this business than ever,” Speer said. “If there’s one drumbeat that I would beat over and over again to producers, it’s get some sort of price protection.”
He specifically encouraged producers to use Livestock Risk Protection (LRP). “Government does do one thing really well — they gave producers this thing called LRP,” Speer said. “It’s a gift. Take advantage of it. Build a floor, you get all the upside, and you don’t have to pay for it until you sell your calves. What a great tool.”
The Beef Buzz is a regular feature heard on radio stations around the region on the Radio Oklahoma Ag Network and is a regular audio feature found on this website as well. Click on the LISTEN BAR above for today’s show and check out our archives for older Beef Buzz shows covering the gamut of the beef cattle industry today.
