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By Codi Vallery-Mills
The cattle cycle is still very much alive according to Lance Zimmerman of Rabobank. He recently sat down with The Cattle Business Weekly during the Ag Media Summit to talk cattle numbers and the fall market ahead.
“The challenge is we’ve went through just an absolutely brutal five-year stretch until really about this time last year. The markets finally started waking up and behaving a little bit more rationally if you’re a cattle producer,” Zimmerman.
That five-year stretch included a lot of volatility in the market based on shifting demand preferences, losses in pasture availability, and geo-political happenings.
Heading into the fall 2024 calf run there are still the above fluctuating elements but now the nation’s cowherd is at its lowest inventory seen in decades.
“The nation’s cow herd on January 1 of this year was at 28.2 million head of beef cows. It’s going to be a little bit smaller than that on January 1 of this next year, probably about 300,000 head smaller,” Zimmerman says.
The reduced herd size could cause feedlots and packers to pay more for availability. “I expect that we will have just a little bit of weakness coming into the fall, but there are two caveats to that. While we might have a little bit of seasonal weakness into the fall, if we’re in the $320s today on a US average basis, I think there’ll still be plenty of support around $3, so a little bit of softening, but still a very strong fall calf run.”
The exceptions he speaks of are the deferred live cattle and feeder cattle futures which are not pricing in the same fundamentals as the cash market.
“In June, we traded fed cattle across the U.S. at $195/cwt live basis. The June futures contract for next year is anywhere from five to $10 discount that cash price this year, so the market’s either saying, ‘We’re really concerned about demand, or we don’t think supplies are going to decline.’ As much as everyone else, myself included, is forecasting…I think some of the demand concerns center around the economy at large, concerns about potential trade war implications on the election and things of that nature, and just uncertainty about what the domestic economy is doing going forward.”
Zimmerman says if the U.S. cattle industry gains confidence in what the political projection looks like and corresponding economic conditions, there could be a very aggressive rally in the deferred live cattle and feeder cattle futures.
10-Year Cattle Cycle
Traditionally, the ag economists have talked about a 10-year cattle cycle. Where exactly is the American cattle rancher in this cycle?
“We’ve stopped cow herd liquidation. Beef cow slaughter is down 18 percent relative to a year ago through June, so we’ve stopped liquidating the cow herd. We’re firmly into a stabilization pace,” Zimmerman says.
Now whether cattlemen are willing to retain heifers at a larger level than they have the past five-years will be something to watch for during this fall/winter market.
Zimmerman says he thinks producers are a little tentative to increase cow numbers because when herd rebuilding began in 2014 and 2015 and it kept growing into 2019, the market punished cattlemen from basically 2017 all the way through 2021.
He says producers are sitting back and saying, “ ‘No, if we’re going to rebuild, we want some confidence that it’s going to last and we’re not going to get the rug pulled out from under us like we did in 2016 and 2017 when that market corrected as sharply as it did,’” Zimmerman says.
“We’re in an environment where the rebuilds just going to take longer, and part of that’s due to that sentiment from the cattle producer side. Part of it’s also due to the fact that by and large pasture recovery has not been as aggressive as it was during that last rebuild.”
An uptrend in higher cattle prices really has only been happening over the past 12 to 18-months. In cattle market terms it’s a relatively “new” price trend.
Here’s Zimmerman’s advice to ranchers who may want to retain heifers this fall, but just aren’t confident in the market yet.
“I’m telling them to sell all the steer mates or if you’re in a backgrounding situation, do what you normally do there and sell those calves into the early parts of next year, but treat the majority of the top cut of your heifers as replacements. Still continue to raise them right along with those steer mates. Don’t implant them. Do the right things. Watch them appropriately. Get to the backgrounding season when you’re going to sell those feeder cattle. Make a deep cut. If the market looks like it’s not as optimistic, go ahead and cut a little deeper. You can still retain a chunk of those heifers on the ranch through the spring right before breeding time. Again, make another decision. Do prospects look good enough that you want to breed these animals? If not, sell them, as you’re still going to sell into a very strong feeder market. But if not, go ahead and breed them. If a big group becomes open, sell that third. You have a lot of opportunities to make those decisions along the way without being really committed to all of it.”
