Beef Cattle Market Outlook: Long-term Trends and Opportunities

Dr. Elliott Dennis Author

08/29/2022 Added

27 Plays

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Dr. Elliott Dennis discusses long-term trends and opportunities at the 2022 GSL Open House

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[00:00:00.098](country music)
[00:00:07.680]Well, I have the pleasure
[00:00:09.030]of introducing our first speaker.
[00:00:10.860]To get our program started this morning,
[00:00:12.750]where we're gonna learn a little bit
[00:00:13.950]about our cattle market updates by Doctor Elliott Dennis.
[00:00:17.730]He's our UNL Extension Livestock Marketing Specialist.
[00:00:21.614]He does a lot of extension and research
[00:00:24.090]related to cattle livestock markets.
[00:00:26.730]A graduate from K State, so don't put that against him,
[00:00:30.510]and started here at UNL in 2019.
[00:00:33.750]So pleasure of introducing Doctor Elliott Dennis,
[00:00:36.600]and we'll get our program started this morning.
[00:00:40.710]Thanks, Casey.
[00:00:46.685](crowd member coughs)
[00:00:59.460]Share our screen.
[00:01:21.930]How does this sound? Is that loud enough?
[00:01:24.600]Okay, cool.
[00:01:26.820]Great. Well, I am really happy to be here.
[00:01:30.090]I think this is both an opportunity for the markets,
[00:01:33.630]and I think there's a lot of optimism right now,
[00:01:36.480]at least price wise.
[00:01:39.570]And when we look especially out into 2023, 2024,
[00:01:43.470]what we'll kind of show
[00:01:45.540]through some of the long term trends
[00:01:46.860]is that there is at least some fundamental support,
[00:01:50.310]for why there's that optimism.
[00:01:52.680]I still think that there's some challenges
[00:01:55.230]that we need to work through,
[00:01:56.160]and if we can get to 2023, 2024,
[00:01:58.740]then I think we can take advantage
[00:02:01.800]of some of those opportunities, so.
[00:02:11.341]Not. Move over here.
[00:02:18.180]Okay. So this is what it really looks like.
[00:02:20.889]I'm part of Livestock Marketing Information Center.
[00:02:24.120]This is really just a group of economists
[00:02:25.920]throughout the United States.
[00:02:26.970]We get together generally on a quarterly basis.
[00:02:29.940]We talk about what's happening in each of our regions.
[00:02:33.420]Collectively, we put together a forecast
[00:02:36.420]on what the market would be.
[00:02:39.150]And really this is kind of where we see a lot of this going.
[00:02:42.180]You can look at USDA also has a forecast,
[00:02:45.586]also the different divisions of USDA have forecasts,
[00:02:51.090]but really, kind of the big trend here
[00:02:53.940]is that this is where we're at
[00:02:55.170]in third, fourth quarter.
[00:02:57.120]This is really where we're gonna start to see
[00:02:59.610]the changes that we talked about,
[00:03:00.950]the culling that's been happening.
[00:03:02.700]We talked about the higher level of placements.
[00:03:05.460]This is really in that third quarter,
[00:03:08.070]fourth quarter of this year,
[00:03:10.050]is where we're gonna really make that shift
[00:03:11.610]towards really reducing commercial beef production.
[00:03:15.090]And so really when we look out into 2023, 2024,
[00:03:19.080]this commercial beef production's gonna go down.
[00:03:21.990]Next year we'll probably be down about 4%.
[00:03:25.560]Given where we're at, kind of that supply situation,
[00:03:28.530]what this ends up meaning
[00:03:30.150]is that we end up ultimately
[00:03:31.770]with a little bit of higher prices.
[00:03:35.310]A lot of the market commentary tends to be
[00:03:37.740]at what that price level is actually gonna be.
[00:03:41.370]And the reason why there's a lot of uncertainty about that
[00:03:43.560]is because, first off,
[00:03:45.540]the culling this year has been really abnormal.
[00:03:49.110]We've had higher corn prices,
[00:03:52.020]which has really put a lot of downward pressure.
[00:03:54.390]And we've had obviously the on growing drought,
[00:03:57.000]which we're gonna hear about more from the meteorologist.
[00:04:00.630]So I, these are probably,
[00:04:02.700]I would say more conservative estimates,
[00:04:05.100]but really the bottom line is
[00:04:07.140]we have supply shrinking.
[00:04:09.300]Really what's been supporting the fed cattle market
[00:04:13.530]and trickling down to the cow, calf
[00:04:15.570]has really been this robust export demand.
[00:04:18.360]We have a pretty mature domestic beef market here in the US,
[00:04:22.410]and so when we talk about opportunities for growth
[00:04:24.570]in the future, oftentimes we're talking about
[00:04:26.910]how do we meet consumers outside of the US.
[00:04:30.510]Now that's a good opportunity for us to continue to grow,
[00:04:33.450]but it also exposes us to other climates
[00:04:37.260]and geopolitical issues,
[00:04:40.050]which we'll talk about in the future.
[00:04:43.050]Ultimately, we're gonna be seeing higher prices
[00:04:45.420]at least into 23 and into 24, but where we're at,
[00:04:50.948]is that it really depends on what shapes up
[00:04:52.800]towards really the end of this year.
[00:04:55.200]This is of course, what everyone's been talking about.
[00:04:57.660]The drought. For reference, I put where we were at in 2021.
[00:05:02.656]We did this last year.
[00:05:04.560]This is what the drought monitor looked like.
[00:05:07.020]So you can see Western US, Wyoming, North Dakota.
[00:05:13.350]And then this is where we're at here this time.
[00:05:16.530]So the drought has persisted,
[00:05:19.710]but the location of that drought has really changed.
[00:05:23.040]So last year when we were talking about culling decisions,
[00:05:26.070]we were talking about changes in the markets.
[00:05:29.280]Most of that was happening really in this Northwest region.
[00:05:33.570]We seem to have that same narrative going this year,
[00:05:36.180]but it's important to note
[00:05:37.260]that there is a distinct difference.
[00:05:38.970]It's because the location of the drought
[00:05:41.907]has actually changed.
[00:05:44.880]I'm sure the meteorologists talk about this
[00:05:46.470]with the La Nina patterns,
[00:05:48.472]which creates unseasonably high or warmer temperatures.
[00:05:54.030]Third consecutive year, never hit a fourth year.
[00:05:57.840]Well, next year we actually break out of it.
[00:06:00.090]I think. Stay tuned.
[00:06:02.370]I'm looking forward to that presentation after me.
[00:06:07.890]So the reason why we monitor the drought is really,
[00:06:11.490]it's kind of a proxy for what the forage conditions
[00:06:14.280]are really gonna look like.
[00:06:15.450]We know forage conditions matter because, you know,
[00:06:18.090]total pounds and the quality of forage,
[00:06:20.790]USDA starting in April really
[00:06:22.830]releases a weekly crop progress report.
[00:06:27.060]The real driver there,
[00:06:28.757]when we talk about it from the cattle side,
[00:06:31.650]is really the pasture range and forage conditions.
[00:06:34.650]This releases every week.
[00:06:37.470]This is for Nebraska.
[00:06:39.840]This is the different quality ratings.
[00:06:42.150]These are obviously subjective,
[00:06:44.400]and it aggregated across the entire state.
[00:06:47.460]What I wanna point out is these two lines
[00:06:50.370]are the excellent and good quality rated pasture.
[00:06:56.100]We're at essentially about, you know,
[00:06:58.172]4% of all the pasture
[00:07:00.540]and range land here in Nebraska is rated good or excellent.
[00:07:05.610]This is what it looks like across the different years.
[00:07:08.250]So when I,
[00:07:09.883]I remember I was thinking about this when I was driving up,
[00:07:12.090]when I first came here in 2019.
[00:07:15.090]Wow. It was so green.
[00:07:17.340]And they, everyone kept telling me, this is, you know,
[00:07:19.410]this was an abnormal year. We got a lot of rain that time.
[00:07:22.350]And when we look at it, you know,
[00:07:23.880]relatively that patch conditions, taking it as a proxy,
[00:07:27.390]that that would seem to be true, right?
[00:07:29.730]This is where we're at in 2022.
[00:07:33.840]So some of that drought condition that we had in 2021
[00:07:39.180]kind of carried over,
[00:07:40.920]and I think there's some serious considerations
[00:07:42.810]that have been starting to be talked about
[00:07:44.610]at not only what does this look like for hay production,
[00:07:48.420]you know, this year, but more importantly,
[00:07:51.300]what does it look like for winter grazing,
[00:07:54.480]which I think is kind of a bigger issue
[00:07:56.220]that we're not really talking about
[00:07:58.650]and places that tend to rely upon winter grazing.
[00:08:01.920]If we don't get some good rains can real,
[00:08:04.800]this could actually have a larger impact.
[00:08:10.110]So when we talk about drought,
[00:08:12.420]and we talk about pasture conditions,
[00:08:14.490]ultimately what that does
[00:08:15.660]is that raises the cost of production
[00:08:18.600]if we're needing to buy in feed.
[00:08:20.760]And so people tend to make decisions on the margin.
[00:08:24.150]So we'd say that if things become more expensive,
[00:08:27.690]we all kind of pencil it out,
[00:08:29.100]and we say, am I gonna actually make money?
[00:08:32.760]You know, what is the amount of debt I need to go into?
[00:08:35.040]And some people choose to say,
[00:08:36.570]hey, rather than buy the additional feed,
[00:08:39.840]I'm actually gonna reduce my herd
[00:08:42.060]to match my feed resources.
[00:08:44.280]This is what's generally been occurring,
[00:08:47.820]more so than matching or actually going out
[00:08:50.820]and buying more feed.
[00:08:52.320]And so the way that we observe this is in the reduction
[00:08:54.840]in total beef cows throughout the United States.
[00:08:59.550]The reason why we,
[00:09:00.690]so more red indicates a larger total head reduction.
[00:09:05.250]Blue actually indicates
[00:09:06.420]that actually increased the number of cows.
[00:09:09.420]So if we were to overlay this with that drought monitor,
[00:09:13.770]what I'd say is that, you know,
[00:09:15.270]Montana, South Dakota, North Dakota,
[00:09:19.080]those were kind of those primary areas,
[00:09:20.850]this is where drought were as affected,
[00:09:22.260]where there's a lot of beef cows,
[00:09:24.870]and then this year with the Southwestern drought.
[00:09:32.970]This is some work that I put out a couple months ago,
[00:09:36.150]but, you know,
[00:09:37.410]really drawing on if we can look at the 2011, 2012, 2013,
[00:09:43.200]and how that really shaped the beef cow market
[00:09:46.530]and ultimately ended up affecting the feeder calf market.
[00:09:50.820]So this is,
[00:09:52.136]what we know is that as we slaughter more animals,
[00:09:55.890]that's this going left to right,
[00:09:58.500]you know, this price that we receive on the cutter cow
[00:10:01.500]ends up going down, right?
[00:10:03.180]So we have, we put more on the market,
[00:10:04.920]that price goes down.
[00:10:06.930]This is long term yearly data,
[00:10:10.620]I think from 1987.
[00:10:13.920]So any time, this dotted black line represents a trend line,
[00:10:20.430]so anytime we're above this line
[00:10:22.380]means that the price is higher than what we'd expect
[00:10:25.380]given that slaughter.
[00:10:27.360]This is where we're at year to date 2022,
[00:10:30.690]but you can see in different quarters we've been at.
[00:10:33.780]So what we'd expect from the slaughter
[00:10:36.570]or the cutter cow side would be potentially 2022,
[00:10:41.640]we'd probably be, or sorry, 2023,
[00:10:44.040]we should be around, you know, $95 per hundred weight.
[00:10:48.840]And then if the drought rebounds,
[00:10:51.120]and we start retaining more cows,
[00:10:53.610]we could be up where in the 110, 120
[00:10:57.270]on the slaughter cow price
[00:11:01.414]on a yearly average basis.
[00:11:06.000]But just because we're expecting higher,
[00:11:09.090]potentially higher prices into 2023 doesn't necessarily mean
[00:11:13.110]that we're going to have more profit.
[00:11:15.900]So this is an important consideration.
[00:11:18.270]Higher prices doesn't necessarily mean higher profits.
[00:11:21.150]We have to look at the cost side.
[00:11:23.310]This is kind of a similar idea of what the,
[00:11:27.930]looking at total cow costs, this is obviously an average,
[00:11:33.852]what this would suggest is,
[00:11:35.520]this black line is once again the trend line,
[00:11:38.157]$25 per cow price increase generally year over year.
[00:11:44.790]There's obviously some years
[00:11:46.620]where that's been a more accelerated.
[00:11:49.170]Right now on average, we're about $950 per cow.
[00:11:54.240]So if we were to take that cow price
[00:11:57.090]and take different assumptions
[00:11:58.440]about what cull revenue is gonna be, non-cow cash costs,
[00:12:02.580]and say, what is our break even for a 600 pound calf?
[00:12:06.360]at that we're probably at a 158 break even,
[00:12:10.350]but if we added in some assumptions about cull revenue,
[00:12:13.140]some non-cow cash costs, we're at about 198.
[00:12:17.460]So this gives you an idea that, you know, even though we're,
[00:12:21.720]you know, potentially expecting higher prices
[00:12:24.720]in the calf market, that cost side is going,
[00:12:28.266]has the potential to pinch some of those profits.
[00:12:34.860]So in addition to reduced opportunities
[00:12:38.130]for feeding with cows, some of those decisions end up,
[00:12:42.530]if we don't have the feed resources,
[00:12:44.310]we tend to push the animals
[00:12:45.930]either into the feed lots earlier,
[00:12:47.850]or we try to ship them out of state.
[00:12:50.130]So this is kind of that same indication
[00:12:52.260]that people were making all,
[00:12:53.880]were also making that decision.
[00:12:55.920]As the drought started to impact them,
[00:12:58.920]that we started to reduce total feeder cattle supply.
[00:13:02.460]And this feeder cattle supply is all those animals
[00:13:04.860]that have been weaned
[00:13:06.180]that have not yet entered the feed yard.
[00:13:08.940]So really shrinking down those availability of supplies.
[00:13:14.580]And ultimately what this ends up doing
[00:13:16.800]is we have this idea of, you know,
[00:13:18.480]where this potential price is gonna be, right?
[00:13:21.180]So this is the five, six pounds.
[00:13:23.280]I put this little question mark up here.
[00:13:26.160]I think we have the potential to be here
[00:13:30.300]if markets shape up.
[00:13:31.830]I think definitely in 2023,
[00:13:34.380]we have the potential to be that high.
[00:13:37.410]Some estimates when we were talking about this last week
[00:13:41.790]with some other economists, we could,
[00:13:44.250]we have the market potential and the underlying fundamentals
[00:13:49.080]could reach the 280, 290 range in 2023.
[00:13:54.600]That's pretty crazy when you think about that,
[00:13:57.150]but when we,
[00:13:58.230]and once, some of the fundamentals on that
[00:14:01.170]have been the accelerated beef cow herd reduction,
[00:14:05.160]and the lack of heifer retention that's really accelerated.
[00:14:10.770]Same thing.
[00:14:11.603]We could probably say something similar
[00:14:13.500]for that stocker animal.
[00:14:17.310]This is the weekly what we're experiencing,
[00:14:20.370]and we'll actually go and compare this
[00:14:22.320]to what the market actually is pricing in the video auction,
[00:14:26.370]cause we really have the video auction
[00:14:27.840]and we have the futures market
[00:14:29.010]to see is there a potential to be here?
[00:14:32.580]And I'd say for the most part, there actually is.
[00:14:35.760]At least the video and the futures market
[00:14:37.830]are pricing that in.
[00:14:41.340]So this is what I was talking about
[00:14:42.450]that although we have higher prices potentially,
[00:14:47.400]it doesn't necessarily mean
[00:14:48.480]that we have potentially more profit.
[00:14:51.540]That's ultimately what we're trying to, you know, maximize.
[00:14:54.960]We're trying to maximize profit,
[00:14:56.220]not total dollars on the calf.
[00:15:01.170]So this is where we're at.
[00:15:02.550]We're probably on average
[00:15:04.320]probably gonna be in that $56 range per cow.
[00:15:08.040]And this is what I was talking about in that 2023,
[00:15:11.220]potentially in that one $138 profit per cow.
[00:15:18.390]So as I was mentioning, I put up those price graphs,
[00:15:21.510]I said, well,
[00:15:22.343]what is the market actually pricing the in?
[00:15:24.510]USDA collects basically video auction,
[00:15:28.440]and so what I did
[00:15:30.750]is went and gathered all of the video auction data
[00:15:34.260]and basically filtered it by all of the animals
[00:15:37.350]that were sold here in the north central region.
[00:15:40.470]And basically each one of these dots
[00:15:42.780]represents a transaction that would occur
[00:15:46.200]for delivery in September, October, or November.
[00:15:51.450]That blue or a greenish line really represents the heifers,
[00:15:56.040]and the red line represents steers.
[00:15:59.790]We have price going up and down,
[00:16:01.890]and we have weight going from low to high left to right.
[00:16:07.830]Sometimes you've heard about the price-weight slide.
[00:16:10.500]Those in the stocker industry
[00:16:11.730]are very familiar with the price-weight slide,
[00:16:14.040]but this is essentially the discount
[00:16:16.830]that happens as you put on weight,
[00:16:19.050]and this varies by where you're at.
[00:16:22.890]And so when we talk about
[00:16:24.540]what is the market willing you to put on weight?
[00:16:27.479]Common question in the stocker industry.
[00:16:30.420]Essentially we look at two different price points
[00:16:32.490]and see what's the marginal difference there.
[00:16:35.310]And essentially that's the pound or that's the money
[00:16:37.680]you'd make on the additional pounds received.
[00:16:44.760]This is what that looks like.
[00:16:46.080]I just summarized this all for you in a table.
[00:16:49.860]You can see that price-weight slide working,
[00:16:52.230]and you can see that there for most part,
[00:16:55.080]there is no significant difference
[00:16:57.390]based on the month in which you're going to sell the cattle.
[00:17:02.820]There are some slight differences,
[00:17:05.310]but if we look at like 5, 6, weights,
[00:17:10.029]not a huge difference in what the video is really pricing
[00:17:14.250]for different delivery months.
[00:17:18.270]So this is, remember we're talking,
[00:17:20.760]could we get up in that, you know, 280, 290 range in 2023?
[00:17:27.660]Not this year, but if we're pricing this at,
[00:17:30.840]you know, 230 in 2022, and we know that the cow herd
[00:17:36.270]is gonna shrink by probably three or four percent next year,
[00:17:39.750]which means the feeder cap crop is gonna be a lot smaller,
[00:17:43.140]then this kind of becomes our base moving into 2023.
[00:17:50.880]So I said that you can either use the futures market,
[00:17:54.720]or you can use the video auction.
[00:17:57.000]And this is essentially what I did.
[00:17:59.130]I went and gathered what the October
[00:18:01.453]feeder cattle contract was trading at.
[00:18:04.650]I put in the historical basis,
[00:18:07.470]and we get an expected cash price at 187.50.
[00:18:12.300]This is for the seven, nine weights.
[00:18:14.550]And currently the video priced that in at 196.
[00:18:19.200]And I should mention that these are for all cattle
[00:18:21.510]that have no additional specifications on them.
[00:18:25.380]So a lot of times in the video
[00:18:26.850]you can sell it for NHTC, all natural.
[00:18:30.630]These are for cattle that have no specifications,
[00:18:33.270]so a significant premium
[00:18:35.760]for cattle that are sold on the video.
[00:18:41.100]Where am I at time?
[00:18:44.010]Okay.
[00:18:46.260]So ultimately we sell cattle, and feed lots purchase them.
[00:18:52.350]They put on weight, we sell them to packers,
[00:18:56.340]they harvest them, they sell it to consumers,
[00:18:59.040]consumers buy the meat, right?
[00:19:01.020]So we produce cattle with certain characteristics,
[00:19:04.346]attributes, because consumers eat meat,
[00:19:07.830]and they demand certain characteristics
[00:19:09.780]that we're trying to build throughout the supply chain.
[00:19:13.410]This is feeble out costs of gain.
[00:19:15.870]This is the potential to push,
[00:19:17.670]have that downward pressure on the price.
[00:19:20.790]Case state works with about, you know,
[00:19:24.030]anywhere from six to 10 feed lots
[00:19:26.010]in the Western part of Kansas.
[00:19:30.030]And they basically dump all their data there.
[00:19:32.670]They then compile that into information,
[00:19:35.700]combine it with market cash to cash transactions,
[00:19:38.880]and they basically show break even costs for feeder cattle,
[00:19:43.350]and what are essentially their cost of gain.
[00:19:47.310]Higher corn prices that we were experiencing
[00:19:49.410]really resulted in higher cost of gain,
[00:19:52.560]and really when they're projecting it out,
[00:19:54.300]the only time the feed yards are really have an opportunity
[00:19:57.660]to make a lot of profit
[00:19:59.250]is in that January, February timeframe.
[00:20:04.230]Some of that relief though
[00:20:06.658]is gonna potentially come in that corn market.
[00:20:09.344]You can't really see this,
[00:20:10.177]but this is the December corn.
[00:20:12.450]If you remember, this is in March,
[00:20:15.960]you know, we had the issues with,
[00:20:18.030]or this is actually January.
[00:20:20.670]We had the Ukrainian conflict.
[00:20:22.710]That whole thing started to, you know, really hit the fan.
[00:20:27.570]Drought started to shape up.
[00:20:29.580]We started to say,
[00:20:30.420]man, there's probably gonna be this huge premium,
[00:20:32.640]which is not uncommon at state throughout the market,
[00:20:35.580]but really where we're at right now,
[00:20:37.710]trading on the December corn contract
[00:20:40.110]is where we were in March.
[00:20:42.270]So all of that premium
[00:20:43.500]that was then built into the market for Ukraine
[00:20:47.670]has pretty much evaporated,
[00:20:49.170]and we're pre-Ukraine corn price.
[00:20:52.980]And so when we're talking about
[00:20:54.690]potentially less demand for cattle coming on feed,
[00:20:57.840]we're talking about potentially
[00:21:00.444]reduction in grind for ethanol,
[00:21:03.360]this price has the potential
[00:21:05.250]to even shrink a little bit lower.
[00:21:07.770]Ultimately that reduces some of that
[00:21:11.070]downward price pressure on the calf price.
[00:21:17.070]So this is another issue
[00:21:18.120]that we've been talking about a lot.
[00:21:19.830]It seems like probably for two years.
[00:21:22.590]COVID really heightened this,
[00:21:23.640]about fed cattle capacity for processing.
[00:21:27.990]This is a figure that Cattle Facts has put out.
[00:21:30.630]This is utilization.
[00:21:33.000]So we have capacity,
[00:21:34.350]and then we have utilization of that capacity
[00:21:36.780]to harvest cattle.
[00:21:39.570]They've projected out, you know,
[00:21:41.700]what given the projection on the feeder cattle
[00:21:46.560]that are gonna come to market in 2023, 2024,
[00:21:51.330]and then compiled this list
[00:21:53.970]of everyone who's proposed a plant to be built,
[00:21:57.780]the capacity, and when it's supposed to come online.
[00:22:02.340]All of this above this yellow line
[00:22:06.120]is everything that's supposed to come online this year,
[00:22:09.360]total capacity.
[00:22:11.850]In addition to the renovations,
[00:22:13.740]even that were just announced down in Texas,
[00:22:17.880]this is all that's been, you know, proposed,
[00:22:20.970]but not necessarily built.
[00:22:22.500]You'll notice North Platte here,
[00:22:25.890]how much of this capacity actually gets built
[00:22:28.920]given the higher costs building supplies
[00:22:33.480]and overall inflation markets,
[00:22:37.050]I think we'll really just have to wait and see.
[00:22:39.120]These seem to be probably,
[00:22:41.760]but maybe not to that large extent.
[00:22:45.120]And ultimately I think we have to ask the question,
[00:22:48.330]even if we had this capacity,
[00:22:50.640]could we find the cattle
[00:22:52.050]and ultimately can we find the labor
[00:22:53.752]to house them and to work the plants?
[00:22:58.920]I think these are larger concerns,
[00:23:00.240]but this has obviously been getting a lot of attention.
[00:23:03.810]And given the inflation market,
[00:23:07.440]I think some of these plants
[00:23:09.600]will likely not actually be opened.
[00:23:14.820]When you talk to the processors,
[00:23:16.410]they often talk about supplying for an export market
[00:23:19.530]or the value beef market.
[00:23:21.630]And so we're talking about the value beef domestically.
[00:23:24.210]We're talking about case ready beef,
[00:23:27.000]where they actually do the pre-trimming
[00:23:28.620]prior to sending it to the retailer.
[00:23:31.410]We also talk about the export market.
[00:23:35.580]Most notably we've been talking about China,
[00:23:37.590]but the way that we'd read this,
[00:23:39.240]this is basically an export demand index.
[00:23:42.810]So if we had the demand today
[00:23:46.590]or as we did in 2020, 2010,
[00:23:51.060]we're selling about 130% more beef now today.
[00:23:55.380]This is a huge increase.
[00:23:57.780]So we're talking about the growth of the beef industry,
[00:24:00.630]given a pretty mature domestic US market,
[00:24:05.100]where US consumers will vary a couple pounds
[00:24:08.520]each year to year, plus or minus.
[00:24:10.920]But really the growth of the beef market
[00:24:13.320]is really in the export market.
[00:24:16.207]We've been talking a lot about the Chinese market
[00:24:19.470]as of late, just because they essentially became a,
[00:24:23.460]went from a zero partner to our third largest
[00:24:26.700]on volume trading partner in really three years.
[00:24:31.110]And that was because of the two part phase deal
[00:24:34.050]that President Trump signed that began in 2020.
[00:24:38.430]On a quantity basis, they consist about 17%.
[00:24:42.720]And so some of this conversation
[00:24:44.850]that's been happening about,
[00:24:46.590]well, the Taiwan, Chinese,
[00:24:49.380]potentially they are gonna be a retaliatory.
[00:24:52.170]You know, does this expose us,
[00:24:55.260]this market that we've just really tried to develop?
[00:24:58.740]And the short answer is no.
[00:25:01.020]And that's what this figure on this right says.
[00:25:04.410]This is a measure of essentially concentration
[00:25:09.240]we have in the export market.
[00:25:13.950]This blue line actually represents
[00:25:15.780]yearly concentration levels.
[00:25:18.540]You take all of our trading export partners,
[00:25:21.990]do some calculations to get this value.
[00:25:24.960]This red line represents 10 year long term trend,
[00:25:29.250]and really post BSE, even though it really sucked,
[00:25:34.080]we actually came out stronger as a beef industry export wise
[00:25:38.820]because of BSE.
[00:25:40.500]And the reason why is because we couldn't rely
[00:25:42.660]upon our traditional partners, the Japans, the South Koreas.
[00:25:47.280]So we had to develop new markets,
[00:25:49.830]and the number of partners we actually have now
[00:25:54.000]prior to BSE has actually grown.
[00:25:56.622]And that quantity that we've been shipping to those company
[00:26:00.570]or countries has actually stayed the same pre or post BSE.
[00:26:06.450]So the beef market is actually stronger,
[00:26:08.820]and I'd say more diverse.
[00:26:10.410]And so when we talk about, you know,
[00:26:12.120]the Chinese potential political repercussions,
[00:26:15.330]it's not as actually as negative.
[00:26:19.950]We have the ability to with withstand it.
[00:26:24.930]But like I said, ultimately,
[00:26:26.070]we have consumers buying the beef, right?
[00:26:29.040]And there's some concern about, you know,
[00:26:31.500]some of these trends.
[00:26:32.940]This is some work that Jason Lusk,
[00:26:35.340]who's at university of Purdue, has,
[00:26:37.200]or Purdue has been doing.
[00:26:39.060]And this is so when you ask consumers,
[00:26:41.070]what do they actually value,
[00:26:43.080]and what's their most important?
[00:26:45.300]Taste and freshness are still number one in their mind,
[00:26:50.430]and the way that we can read this is that taste is basically
[00:26:53.220]one and a half times more important to them
[00:26:55.350]than what that price is.
[00:26:57.030]So they're buying a premium product.
[00:27:01.140]Convenience, you know,
[00:27:02.760]this is when we talk about some of these ongoing issues
[00:27:05.670]of pressure to be more environmentally friendly
[00:27:08.160]or have increased animal welfare,
[00:27:10.710]I think some of those people value it,
[00:27:12.900]but in relative to these other things,
[00:27:14.580]they don't value it as much.
[00:27:17.100]So for instance,
[00:27:18.090]convenience is four times more important to them
[00:27:20.370]than the environmental impact
[00:27:22.110]or the origin or the traceability.
[00:27:24.030]So while we're trying to build all these things,
[00:27:27.330]ultimately we're trying to decide
[00:27:28.650]will consumers pay for these products.
[00:27:33.690]Probably not gonna don't have enough time to focus on this,
[00:27:36.720]but this is some work that just came out
[00:27:39.695]talking about what is really that market share
[00:27:42.810]of basically lab created beef or beyond burgers.
[00:27:48.600]And really the short story is
[00:27:51.480]I don't think we have a lot to be concerned here.
[00:27:53.940]And what they found is that this introduction
[00:27:56.460]of lab-based meat pretty much has the same impact
[00:27:59.430]upon consumer demand for ground beef
[00:28:02.160]as was the introduction of a chicken wrap.
[00:28:05.790]And so I think there's some concern
[00:28:08.760]that potentially this has the, you know,
[00:28:12.060]could really disrupt the market.
[00:28:14.070]I think some of that is really being driven by people
[00:28:16.260]who don't eat beef on a regular basis,
[00:28:18.750]as they show in this paper,
[00:28:20.250]relative to people who consistently eat meat products,
[00:28:23.790]which is about 70%.
[00:28:26.820]But long term this is probably our biggest threat to prices,
[00:28:33.120]and this is inflation, which is really out of our control.
[00:28:37.380]This is some,
[00:28:38.610]the information that the federal reserve puts out.
[00:28:41.370]This red line represents the personal consumption index
[00:28:45.030]or the level of inflation.
[00:28:46.920]This blue line represents the federal fund rates.
[00:28:49.650]This is that interest rates
[00:28:51.180]that they keep talking about raising.
[00:28:54.060]Ultimately, they're talking about raising this
[00:28:57.090]somewhere in the five to six percent range
[00:29:00.180]to really curb inflation,
[00:29:01.830]but the policies tend to be, well,
[00:29:05.730]this will probably regress down to normal.
[00:29:10.200]Internally there's a lot of concern
[00:29:12.060]that unless they raise this fund rate
[00:29:13.620]to, like I said, five, six percent
[00:29:15.390]that inflation won't be controlled
[00:29:18.030]and ultimately consumers make decisions about inflation.
[00:29:23.310]And we're already starting to see those decisions occur.
[00:29:26.490]This is from the Monthly Meat Demand Monitor.
[00:29:29.160]This is sponsored by NCBA and the Beef Checkoff,
[00:29:33.750]which you all contribute to.
[00:29:35.700]So people have already started to make these changes
[00:29:39.000]and really they're just buying less
[00:29:41.879]and downgrading their product that they purchase.
[00:29:45.780]And so while we talk about inflation a lot,
[00:29:49.440]it really has an impact upon consumers.
[00:29:51.990]And I think maybe for the last year or so
[00:29:55.050]consumers have been expecting
[00:29:56.820]that this would potentially resolve itself.
[00:30:00.150]I think we're in a situation
[00:30:01.260]where this is long term. It has a potential.
[00:30:03.840]And the reason why it's important for beef
[00:30:05.940]and ultimately for us as producers,
[00:30:08.550]is that beef is the most sensitive to changes
[00:30:12.630]in consumer's income.
[00:30:14.190]And it's gotten more sensitive through time.
[00:30:16.920]So as this situation really increases,
[00:30:21.090]well, ultimately what that ends up doing
[00:30:22.890]is it reduces the demand for beef at the retail store
[00:30:26.670]and those price pressure,
[00:30:27.840]downward price pressure gets pushed down from the feed lot,
[00:30:31.980]all the way down to the cow, calf producer.
[00:30:35.640]And with that, I'll take questions. Time?
[00:30:38.700]And I'll be here also, if you have questions, for lunch,
[00:30:41.400]happy to take them in as well.
[00:30:43.200]Wonderful. Thank you, Doctor Dennis.
[00:30:47.113](crowd claps)

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Beef Cattle Market Outlook: Long-term Trends and Opportunities

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