Cattle Cycle Driven by Three Big Factors

[Peel] Yeah. You know, this is completely unprecedented in a number of different ways. You know, from just the internal fundamentals of the industry, the normal dynamics that we deal with or from the supply side, and then, you know, add to that all of this, political environment that we're working in now, the macroeconomic environment that we're working in now. And then, you know, we've had some unique things here with some animal disease issues and other things. So, yeah, when you put all that together, there's never been anything that I've experienced like this.

[Yeager] We were running up, though, prior to Screw Worm being a headline maker. Right? 

[Peel] Oh, absolutely. You know this. In fact, I don't think Screw Worm has relatively little to do with where we're at in terms of prices and the movement of markets right now. It's one more factor. And it's and it's kind of adding to the situation. But, you know, this is not a market driven primarily by the, you know, by the border closure or anything related to that. We're in again, the supply fundamentals in this industry are in a situation we've not seen, maybe ever, but certainly not in decades. 

[Yeager] The last time you and I spoke was after a massive report last year that said the smallest herd since this date. Then we went and added it to it this year with inventory lower than before.

[Peel] Exactly. Yeah. 

[Yeager] Why is it not? Why are we not getting more inventory? 

[Peel] Well we will. You know, it's been a slow process. I've spent a lot of time in the last few months studying previous cattle cycles to try to understand the one we're in now. And, and one of my main messages for producers for many months now has been, you know, I know you remember what happened about a decade ago. We had a cattle low in 2014. We expanded to 2019 and started down again to where we are now. and I said, I know you remember that, but this one, even though some things about it are similar or at least some of the fundamental causes are similar, there's some very important differences. This time it's going to be different and has played out thus far to be different. And I think it's going to continue, to be a little bit different story as we go forward. 

[Yeager] You mentioned already some of the factors that make it different, but is there one, if you had to pick just one favorite child that made this happen for this run up? Is there one? 

[Peel] It's tough because I think it's a list of things. But, you know, you can easily say, well, the last two lows were caused by drought or exaggerated by drought. The industry has been cyclical for 150 years, but it's turned out the last two times we've had droughts, right at the low point of inventory that has exaggerated those lows. What's different this time, fundamentally from the last time, is that the drought, a decade ago, was very regionally pronounced. It's primarily here where I'm at in Oklahoma and Texas. And what happened to us was very severe, and it was severe enough to change the national numbers. But not everybody in the country went through that drought. And so they were prepared to respond more quickly coming out of the drought. This time, we've had multiple years of drought that have been pretty much around the country. It's kind of moved around a little bit in emphasis, but everybody's had a turn in the barrel this time. And so the overall impacts to the industry have been much more widespread. It's taken longer for recovery. And I think that's what we've been experiencing the last couple of years. And we're still not out of it. We just can't seem to really get a clean break on this drought at the moment, we're in pretty good shape in the Southern Plains, but there's still a lot of issues in the central and northern Plains and in some major beef cattle areas. So, it's been a long, slow process and will continue to be, I think, a lengthy process as we go forward. 

[Yeager] Let's go off the farm to the grocery store. What's the consumer's role in all of this been? [Peel] You know, in this situation, obviously, everything is tight from the bottom up. Right? So, as you work your way up, the implication is, of course, that sooner or later, beef production will fall more than it has. We have not dropped very much in the last couple of years, even though we peaked the overall beef production in 2022. But we haven't really dropped much, certainly not in the last year. We were actually pretty flat last year. I say all that to say that we've got record high consumer prices, retail prices, wholesale beef prices. and that was, that was actually in place on sort of steady supplies of beef. As we go forward, we're going to have less beef. Beef supplies are going to tighten up. And so that's going to continue to support higher prices. You know, probably the biggest question I've had for many months in my meetings is, is there a limit to demand when, you know, when do we top our demand and we just haven't seen it yet? Beef demand has been remarkably strong. It's a real testament to the industry, continuing to produce very high quality and very consistent quality beef in recent years. And so, the consumer demand has been remarkable as we go forward with a tighter supply, we're going to continue to see higher prices. I think, you know, I don't think there's any real relief for consumers for the foreseeable future, in this thing, because we've actually got to make things tighter, as we start the rebuilding process, when we save heifers and pull them out of the feeder supply side of the industry, then we're going to make, we're going to make the, the, you know, the beef part of this, the retail part of this even tighter, for quite a few months. Eventually, of course, we lead to higher production. That's a couple of years at least down the road. You know, as we've said, the supply fundamentals are just extremely bullish right now. Extremely tight is going to get tighter because of the normal dynamics of rebuilding the industry. and consumer demand has been stellar up until now. It is somewhat surprising honestly. I've looked for problems for a couple of years. We just haven't seen it.  

The full discussion will be part of the MtoM release on Tuesday.

Contact: Paul.Yeager@iowapbs.org