Half Time: We’re now halfway through the year, and given the market’s strength thus far, 2024 is shaping up to be especially significant for the business. So, let’s review where we’ve been and explore the broader implications surrounding the business.
Market: Undoubtedly, most of the coffee shop talk centers around the market itself. It’s been another year of new record prices with the fed market bumping up against $196 as June closed out business. That represents a gain of $100+/cwt in just four years since the Covid low (week ending July 3, 2020). And through the first half of this year, the average weekly beat versus 2023 is over $14/cwt (or $200/head for a 1,450 lb steer).
Yeah But…: I hear the permabears murmuring in the background: “Yeah, but what about the $170 high in 2014? The newest record only beats that price by ~$25 – and that was ten years ago. So, 2024 isn’t really that great if we consider the effects of inflation.” Fair enough – let’s dig into that perspective with a little more detail and run an apples-to-apples comparison between now and then.
Volume: Seemingly, the conventional thinking out there has many believing the market is being supported by lower beef production. After all cow numbers are down to 28.2M. That’s driving the market, right?
To the contrary, the industry is remarkably resourceful. Fed beef has surged to the upside. The second graph details January-through-June fed beef production since 2011. (None of that’s surprising; for more on the longer-term trend around cow numbers and productivity see More Better Beef.)
Putting It All Together: Let’s pull the threads together. The third chart accounts for BOTH inflation and production thereby providing the apples-to-apples comparison (the data is detailed at the end of the column).
There are two regression lines:
· The one on the left plots ’11-thru-’19 data (the correlation = .96!);
· The right-hand line plots ’22-thru-’24.
A couple of key points to be made here:
1. Feedyards are scoring higher prices on bigger volume (the curve has moved up-and-to-the-right).
2. That means IF ’11-thru-’19 price / production levels were at current levels (~11B lb), the inflation-adjusted fed price would be ~$109/cwt. This year’s market is $147/cwt. That represents a difference of $550+/head (apples-to-apples real dollars)!
What Changed?: Now ask yourself if anything has changed; is any of this due to the permabears’ government-intervention playbook? They keep telling us we need central planning to ensure producer prosperity: cash trade mandate, tariffs, COOL, packer reform, etc… But all of those represent an essence of the knowledge problem and thereby introduce the risk of unintended consequences.
Instead of some intervention derived from politicians’ concept of a “good idea” (after being goaded by the rent seekers), the better question is always, “What if we did nothing?”
Consumers ARE The Business: The past several years is testimony to the hands-off-is-better approach. None of those supposed fixes have been implemented. And yet the market charges on.
That’s because consumers ARE the business. And success is the direct result of maintaining a disciplined consumer focus (and allowing free enterprise to operate without governmental interference).
There are more dollars coming into the beef industry than ever. All that investment in better quality and consistency AND research and promotion really does matter – enabling producers to be the beneficiaries – now more than ever.
Nevil Speer is an independent consultant based in Bowling Green, KY. The views and opinions expressed herein do not reflect, nor are associated with in any manner, any client or business relationship. He can be reached at nevil.speer@turkeytrack.biz.
