Despite recent market fluctuations, the cattle industry is still experiencing historically high prices, fueled by unprecedented consumer demand, according to Lance Zimmerman, Senior Beef Analyst for Rabobank in today’s Beef Buzz.
Zimmerman talked with Oklahoma Farm Report’s Ron Hays at the recent National Farm Broadcasters Trade Talk in Kansas City- you can hear part one of their conversation by clicking on the audio button above.
While the cattle market has experienced a notable correction in recent weeks, dropping approximately 15% over the past month, Zimmerman emphasizes that these levels remain “lifetime, wildly high profits” for the industry. He attributes the recent volatility to the psychology of the market, particularly the exit of speculative long positions on futures exchanges.
“When you have record high or near record high participation of longs… there’s always the risk of the unknown and the uncertainty that can creep into those markets that spooks those long positions and those fund traders when they want to exit the market,” Zimmerman explained. He described the current situation as a period of “capitulation,” where traders are exiting positions to await cooler market temperatures.
However, Zimmerman is quick to point out to Hays that the underlying fundamentals of the cattle market remain “incredibly strong.” He highlights that the story of high prices is not driven by declining supply, as per capita supplies have remained surprisingly steady over the past six years. Instead, the primary driver is a surge in consumer demand, reaching “40 year plus highs.”
This robust demand, Zimmerman suggests, is a testament to several factors:
- Unprecedented Quality: The beef industry’s commitment to quality, from producers to processors, is resonating with consumers.
- Dietary Trends: The “Maha movement” and a desire for fresh foods, particularly those found on the perimeter of grocery stores, benefit beef. Additionally, a growing understanding that “fat’s not the enemy, but actually the friend” is supporting beef consumption.
- Post-Pandemic Cooking Habits: The pandemic forced many consumers, particularly younger generations and even some baby boomers, to re-learn cooking skills. This has led to increased home cooking and a greater reliance on products like beef.
- Health and Wellness: The rise of anti-obesity drugs, while leading consumers to eat less overall, also comes with medical advice to “lean into animal protein” to preserve muscle mass and bone density, a benefit that beef provides.
“The consumer has been clearly the MVP of these high prices,” Zimmerman stated.
Looking ahead, Zimmerman anticipates that supply will eventually become a more significant factor in supporting prices. He notes that the cattle supply is expected to decline further as producers focus on rebuilding herds. While strong imports, carcass weight gains, and increased cattle from the dairy sector have bolstered current supplies, the intentional retention of heifers for future breeding will naturally lead to a reduction in market-ready cattle.
He acknowledges that the recent market pullback may have caused some producers to reconsider holding back females for herd expansion. However, he assures that profitability remains exceptionally high, and pasture conditions are improving.
“We have a lot of producers that are not allowing themselves to enjoy the run this market has been on for fear of what could happen,” Zimmerman said, referencing the market downturn experienced in 2015. He urged producers, particularly those also involved in grain and oilseed production where margins have been tighter, not to miss the opportunity to participate in the future of the cattle market by retaining heifers.
“The next several years, we’re going to pull supply out of this market to further prop up these prices,” Zimmerman concluded. “Supply can be just as supportive to this market as demand, which means there’s still some price appreciation ahead for us.”
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 for today’s show and check out our archives for older Beef Buzz shows covering the gamut of the beef cattle industry today.
