State of the Beef Industry

Industry Shifts: What Cattle Producers See Coming In the Next 5 Years

Wed, 02 Oct 2024 16:03:11 GMT

Drovers State of the Beef Industry 2024 Report

(Farm Journal)

Viability is Top of Mind

Despite the challenges, producers are thinking to the future with plans to add a family member and grow their herd size. In fact, 54% of producers in this year’s survey indicate they plan to add a family member to the operation (versus 51% in 2023).

Even though it doesn’t appear the business will see rapid rebuilding , there are indications many of these operations are viable and plan on remaining that way in the future. That’s certainly a sign of brewing optimism among the respondents.

Your Next Read: Are Cattle Producers Rebuilding Their Herds Now?

What The 2022 National Beef Quality Audit Says About The Cattle Industry

Wed, 13 Sep 2023 21:29:38 GMT

Editor’s Note: This article is the fourth in a series that comprise Drovers 2023 State of the Beef Industry. The full report will appear as a 16-page special section in the September 2023 issue. Additional articles from the series will be published in this space in the following days.

Three decades ago, the primary objective of America’s cattle and beef producers was to remain competitive with other proteins, especially the poultry industry. That desire spurred the landmark 1991 National Beef Quality Audit (NBQA), which produced some grim realities along with a road map for success.

The results of the first NBQA were too dramatic to ignore, former NCBA vice president of research and industry information Darrell Wilkes said at the time. He called the report the “proverbial 2’x4' between the eyes” telling the industry to implement changes. In short, carcasses were too fat, steaks too tough and blemishes too frequent.

Fast forward to the 2022 NBQA, which delivers many encouraging messages about beef’s improvement over the years while identifying issues that need further attention. The audit suggests the industry is producing a high-quality product that consumers want more efficiently and the industry’s primary focus across the supply chain remains food safety.

But as consumer demands have evolved, considerations outside of physical attributes have been added, such as sustainability, animal welfare and the connection between producers and consumers. By doing so, the results have been more beneficial to all parties involved.

Quality and Efficiency

“The NBQA is an important tool for the industry to identify where improvements are being made and where there are opportunities to capture more value,” says Josh White, senior director of producer education and sustainability for the National Cattlemen’s Beef Association. “The good news is, overall, the beef industry is providing a quality product to consumers that they enjoy.”

Quality, in fact, has reached levels higher than most thought possible. In the early 1990s, the percentage of carcasses grading Choice and Prime combined was slightly over 50%. In the 2022 audit, that combined percentage was 76% Choice and Prime combined. For several weeks over the past year, USDA market reports suggest that the percentage of Choice and Prime has exceeded 80%.

More than 25,000 carcasses were evaluated at packing and processing facilities to gather data for the NBQA. When comparing NBQAs from 2016 and 2022, the largest improvement was overall increased efficiency across the beef supply chain. And, it was noted, market segments no longer consider food safety as a purchasing criterion, but an expectation.

Some Key Findings Include:

When comparing 2016 and 2022 NBQAs, the largest improvement was overall increased efficiency across the beef supply chain.
Market sectors indicated their companies strive to increase their sustainability and work with the entire beef supply chain to do so.
The entire industry felt the effects of the COVID-19 pandemic, nonetheless, beef proved to be a choice of consumers, and the industry persevered to provide products.
Due to pandemic pressures, more cattle over 30 months of age were harvested.
The beef industry’s image improved within fed cattle market sectors.
Foreign materials continue to present a problem, but the industry is making strides to decrease incidence.
There was an increase in usage of electronic identification (EID).
There was an increase in the frequency of Prime and Choice quality grades, while Select decreased drastically.
The industry is improving quality, but it is accompanied by an increase in carcass weight and fat thickness, as well as large increases in percentages of Yield Grade 4 and 5 carcasses.
Nearly 93% of transportation service providers interviewed were familiar with the Beef Quality Assurance Transportation (BQAT) program and 91% are BQAT certified.
Nearly 92% of cattle received a mobility score of 1, with the animal walking easily and normally. That’s a decrease from 97% in 2016 and is attributed to larger cattle and longer transport times.

Areas for Focused Improvement:

While increasing numbers of producers are using technology for recordkeeping and data collection, others among the beef supply chain are concerned animal disease could impact the industry, and current traceability efforts do not provide a robust enough system to combat this potential threat.
Carcasses were discounted for liver abscesses, causing product loss and decreased profitability.
Preventative health strategies must be improved to ensure future effectiveness of antimicrobials.
Heat stress and other environmental factors caused increased bruising, dark cutters and heart issues as well as decreased mobility.
Increased bruising frequency should be addressed through facility and trailer design as well cattle handler training.

Eating Quality and Consistency:

Numbers of Yield Grade 4 and 5 cattle increased, and improved genetics could maintain the ideal of Yield Grade 3 or better, while maintaining marbling necessary to achieve desired quality grades.
Use advancements in genetic selection technologies to breed for carcasses with increased eating satisfaction, uniformity and desirable end-product specifications.

Good News: Consumers Continue To Choose Beef

Editor’s Note: This article is part of the Drovers 2024 State of the Beef Industry report, which includes an exclusive survey of cattle producers and their thoughts on numerous topics of importance to the future of their operations. To download the full report, click here .

The dominating theme in 2023’s State of the Beef Industry report was weather. While parts of the U.S. still grapple with dry conditions, the overall situation has dramatically improved versus this time last year, especially in the middle part of the country.

The reprieve has provided producers some opportunity to focus on other parts of the business. The topic that’s foremost of significance is the market — record prices have a way of doing that. Supplies are increasingly tight, but much of the market’s strength is attributed to resilient beef demand. Last year’s per capita beef spending totaled $461 — a new record by $14.

All-Fresh Beef Retail Price

(Farm Journal)

That’s especially encouraging given consumers’ No. 1 complaint about inflation involves food prices. The business is such that consumers have had every opportunity to trade down when it comes to their protein options, but they continue to choose beef, even at higher prices.

Those consumer dollars are flowing back into the production sector. As a result, fed cattle prices have established another set of new highs in 2024. While overall beef production has waned (due to lower cow slaughter), fed beef production has been running ahead of year-ago levels. That is, higher prices on bigger volume.

All of that is a testament to the importance of building, and maintaining, efforts to boost beef demand. The industry’s success toward improved quality and consistency, coupled with meaningful promotion, is paying dividends for U.S. producers.

Battle for Margin

Nevertheless, while fed beef supply has held steady, it’s likely that trend will be pressured in coming years. Beef cow inventory started the year at 28.2 million head. The Jan. 1 feeder cattle supply outside of feedyards was just 24.2 million head, down 5% from 2023 and off 10% from the recent peak of 26.6 million head in 2017.

Beef Cow Inventory

(Farm Journal)

Feeder Cattle Supply Outside Feedlots

(Farm Journal)

Therefore, numbers will remain tight in the coming years, and they will be further exacerbated if/when producers decide to hold back heifers to rebuild the cowherd. At that point, the industry is likely to see the peak in prices.

Just how high can prices go? That remains to be seen, but the battle for margin between the feedyard and the packer, and ultimately the retail and food service sectors, will be especially important to watch. In the interim, the cow-calf producer holds the cards and will continue to benefit from solid prices allowing the sector to string together multiple years of unprecedented profits.

Beef On Dairy

Last, but not least, the beef-on-dairy trend continues to influence the industry, proving to be an important contributor to the beef sector. In light of waning beef numbers, these calves will make up a larger share of fed beef in the next several years (as dairy cow numbers remain relatively steady). As a result, many feedyards are working to improve the quality and consistency of their beef-on-dairy supply chains. All of that means increased feedback to suppliers as the calves are easily traceable. Much of that influence will likely creep into the native supply chains.

Dairy Cow Inventory

(Farm Journal)

A Glimpse Into the Cattle Inventory Black Hole

Drovers State of the Beef Industry 2024 Report

(Source: USDA; CattleFax Estimates)

Cows and Heifers

Beef cow inventories are estimated to be 400,000 below a year ago. Beef cow slaughter has been down sharply but not enough to overcome the record-low bred heifer inventory as of Jan. 1, 2024, most of which have now calved and would be counted as cows.

Beef replacement heifer inventories are likely steady to slightly higher but remain historically tight, estimated up a narrow 50,000 head from last year. Spring 2023-born heifers were likely retained and bred at a stabilization pace, with numbers roughly even with year-ago. A few more heifers might have been retained from the fall 2023 calf crop, although this is a smaller percentage of the nation’s herd. The expectation is for a mild expansion pace of heifer retention this fall.

Dairy Cows

Dairy cow inventories are also likely steady to slightly smaller, estimated 50,000 head lower due to a shortage of replacements coming into the year, despite a steep decline in dairy cow slaughter. The dairy replacement heifer shortage, largely due to the beef-on-dairy revolution, will remain a headwind to stabilization and growth of the herd in the near term.

Calves and Feeders

The July report also contained the first estimate of the current year’s calf crop. CattleFax expects the 2024 calf crop to be 700,000 fewer head, a record low, reflecting a smaller breeding herd coming into the year. The smaller calf crop will continue to translate into tighter feeder cattle and fed cattle supplies down the road.

With total on-feed numbers up 100,000 head from year-ago, the feeder cattle and calf supply remaining outside of feedyards would be down 850,000 head or 2.5% from last year, also record small. The July 1 outside supply figure would include the new spring-born calf crop as well as the remaining 2023-born feeder cattle and calves.

Bottom Line

Despite the absence of the July Cattle Inventory report, CattleFax estimates, based on numerous other data sets, cattle inventories will continue to tighten, but with mixed signs of stabilization. Expansion and retention patterns will be closely monitored this fall with confirmation in January 2025’s inventory report.

Reprinted with permission from CattleFax.

Your Next Read: Good News: Consumers Continue To Choose Beef

The Future of the Beef Industry: New Survey Data Shows Producers Are Optimistic

Editor’s Note: This article is part of the Drovers 2024 State of the Beef Industry report, which includes an exclusive survey of cattle producers and their thoughts on numerous topics of importance to the future of their operations. To download the full report, click here .

Based on the 2024 State of the Beef Industry survey results, most respondents are simultaneously serious, thoughtful and optimistic about the business.

While parts of the U.S. still grapple with dry conditions, the overall situation has dramatically improved versus this time last year, especially in the middle part of the country. The reprieve from drought coupled with record prices has provided producers an opportunity to focus on other parts of the business.

Supplies are increasingly tight, but much of the market’s strength is attributed to resilient beef demand . Last year’s per capita beef spending totaled $461 — a new record by $14.

Consumers have had every opportunity to trade down when it comes to their protein options, but they continue to choose beef, even at higher prices.

Those consumer dollars are flowing back into the production sector. As a result, fed cattle prices have established another set of new highs in 2024. While overall beef production has waned (due to lower cow slaughter), fed beef production has been running ahead of year-ago levels. That is, higher prices on bigger volume.

Just how high can prices go? That remains to be seen, but the battle for margin between the feedyard and the packer, and ultimately the retail and food service sectors, will be especially important to watch. In the interim, the cow-calf producer holds the cards and will continue to benefit from solid prices allowing the sector to string together multiple years of unprecedented profits. In fact, in the past five years, 49% of respondents report profitability.

Looking to the Future

Producers are thinking to the future with plans to add a family member. In the 2024 Drovers State of the Beef Industry survey, 59% indicate they plan to add a family member to the operation in the next five years. That number was 54% in 2023.

The question that often follows next when adding a family member is herd size. Even though it doesn’t appear the industry will see rapid rebuilding, 51% of producers say they will grow herd size in the next five years. Of the remaining respondents, 38% plan to maintain herd size, 7% will reduce herd numbers and 4% aren’t sure.

While U.S. beef cow inventories stabilize in 2024, Lance Zimmerman, senior vice president, senior animal protein analyst for RaboResearch Food & Agribusiness, says the industry could experience a longer transition period as unprecedented risk mutes profit signals that normally kick-start herd rebuilding efforts.

USDA reported a Jan. 1 beef cow inventory of 28.2 million head, and Rabobank is forecasting a relatively stable cow herd over the next three years between 27.9 and 28.3 million. Cow-calf producers remain relatively quiet about the prospects of restocking pastures. That stands in contrast to the continuous dialogue regarding the production and price risks casting doubts on the segment.

Therefore, numbers will remain tight in the coming years, and they will be further exacerbated if/when producers decide to hold back heifers to rebuild the cowherd. At that point, the industry is likely to see the peak in prices.

For now, there are indications many operations are viable, which is likely why 64% of producers say they are optimistic about the future. In the 2023 survey, that number was similar at 65%.

Breakdown of Survey Respondents

Given this is the second consecutive Drover’s State of the Beef Industry survey, of special interest is the comparison of this year’s results versus last year. That begins with the demographics. Some of the similarities are striking.

For example, 2023’s survey resulted in 40% of respondents managing operations in which three-quarters or more of the business income is derived from cattle; that number was nearly identical this year (36%). Similarly, the 2023 survey indicated 82% of respondents preconditioned their calves before selling, and this year’s number came in at 79%.

Therefore, many of the key year-over-year comparisons are especially meaningful and begin to tell some sort of story in terms of trend (versus one-offs) about what’s really going on in the industry.

Drovers State of the Beef Industry

(Farm Journal)

Your Next Read: Idaho Rancher’s Enthralling 35-Mile Fall Trek Through BLM Land

Are Cattle Producers Rebuilding Their Herds Now?

Editor’s Note: This article is part of the Drovers 2024 State of the Beef Industry report, which includes an exclusive survey of cattle producers and their thoughts on numerous topics of importance to the future of their operations. To download the full report, click here .

America’s beef cattle inventory continues to tighten, pushing market prices to record levels. Under normal conditions, that would lead to anticipation about building herds again. If this were a typical cattle cycle, the elements for expansion — ample forage and record-high cattle prices — would be in place. However, the current cattle cycle is not typical other than the recent liquidation when drought forced significant culling and resulted in the smallest U.S. cattle herd inventory in 70 years.

The pace of expansion or herd rebuilding in the current cattle cycle will be much slower than past cycles, and the extent of herd building will also be reduced. That has been the case for previous beef inventory expansions since 1975’s peak of 132 million head as subsequent cycles have all peaked below the previous cyclical peak. For instance, the 1982 peak was 115 million head, 1996 at 104 million, 2007 at 97 million and 2019 at 95 million. What has changed?

Production-wise, efficiency has increased and the industry produces significantly more beef with fewer cattle, which impacts prices. When expansion begins, smaller increases in inventory pull prices lower. But there are other crucial factors that influence individual ranchers’ plans to continue in the cattle business.

Volatility Will Increase

The age of farmers and ranchers is critical as decisions are made going forward. Closely tied to age is the financial stress of the market over the previous four years. This plays a greater role for part-time cattle producers. The drought coupled with low prices and accelerating costs of production are key to the decision. I often hear ranchers comment: “Why would I or my spouse continue working in town to support cows that are draining our bank account?”

For many of those part-time cattle producers, the cows went to the sale yard. Will they be replaced? Only time will tell, but many will not return to the business. The other major consideration of this cycle is the price of replacement cows or heifers.

Ranchers are rightfully wary of a market that could become increasingly volatile. It’s a major risk to invest in cows or breed heifers with high maintenance costs that won’t deliver a marketable product for two-plus years.

The decision to own cattle or expand an existing herd will be influenced by high interest rates and rising production costs, further slowing the speed of any herd rebuilding.

Rebuilding The Cowherd Remains On Hold

One of the biggest factors on everyone’s mind revolves around if and when cow-calf producers might begin rebuilding the cowherd. Much of that decision to date has been contingent on the weather. However, despite improving forage availability and conditions (and higher prices), producers remain tepid about running more cows.

Drovers State of the Beef Industry 2024 Report

(Farm Journal)

The 2024 Drovers State of the Beef Industry survey asked, “What are your plans to restock your cowherd (as a result of the drought)?”

In both 2023 and 2024, 21% of respondents indicated “next year.” The process remains on hold. However, some of that reluctance might prove to be permanent. One key difference in this year’s survey has more producers indicating they have “no plans to restock” (23% versus 14% in 2024 and 2023, respectively).

There’s not much appetite to aggressively rebuild the cowherd. Producers are cautious when it comes to running more cows.

Drovers State of the Beef Industry 2024 Report

(Farm Journal)

Your Next Read: A Glimpse Into the Cattle Inventory Black Hole

How Historical Cattle Cycles Are Shaping Inventory and Production Today

Editor’s Note: This article is part of the Drovers 2024 State of the Beef Industry report, which includes an exclusive survey of cattle producers and their thoughts on numerous topics of importance to the future of their operations. To download the full report, click here .

By Lance Zimmerman, senior vice president, senior animal protein analyst for RaboResearch Food & Agribusiness

Past cattle cycles provide an outline for the tendencies that typically shape inventory and production over years and decades. While U.S. beef cow inventories stabilize in 2024, the industry could experience a longer transition period as unprecedented risk mutes profit signals that normally kick-start herd rebuilding efforts.

USDA reported a Jan. 1 beef cow inventory of 28.2 million head, and Rabobank is forecasting a relatively stable cow herd over the next three years between 27.9 and 28.3 million. Cow-calf producers remain relatively quiet about the prospects of restocking pastures. That stands in contrast to the continuous dialogue regarding the production and price risks casting doubts on the segment.

The last herd rebuild started in 2014, but remember the short-term milestones that preceded it. The percentage of heifers in the fed cattle slaughter mix peaked in 2010, the beef cow cull rate spiked in 2011 and beef replacement heifer inventories didn’t post a year-over-year increase until Jan. 1, 2012.

More recently the heifer slaughter mix peaked in 2023, and the cull rate reached multiple-decade highs in 2022. Now, the focus is on heifer retention, and that remains a sticking point for this rebuild.

Macroeconomics outline declining supplies and steady demand, or increasing demand and steady supplies, lead to higher prices.

Supply Versus Demand

For nearly three decades, the U.S. beef industry has been in a declining supply and increasing demand market. Absolute prices and volatility have increased significantly over that time, but per-head profit margins have not followed the same uptrend.

Commodity producers largely operate on thin margins, and competition within and across the beef and cattle producing segments has kept margins low, while volatility in returns has increased. That is why U.S. producers are expressing more caution during this rebuild.

The beef consumer’s role in supporting each U.S. cowherd rebuild has been discussed many times. Tighter supplies motivate higher meat case and menu prices, allowing producers to receive a higher percentage of beef spending. The July average USDA all-fresh beef retail price pushed to new highs at $8.15 per pound. Even with relatively steady beef demand, Rabobank expects annual average retail beef prices to approach $9.50 per pound around 2027.

That means 500-lb. steer calf prices could advance to annual averages near $400 per cwt as early as 2026, and replacement female prices follow the calf market. It is possible $4,000 bred heifers are in the producer’s future. CattleFax estimates current prices around $2,800 per head. That is creating pause for a segment dominated by part-time operators facing production risks and less of an appetite to take on more.

El Niño didn’t offer the weather benefits needed to recover pastures in major cow-calf producing regions in 2023 and early 2024, and a return to La Niña in late 2024 will cast doubt on forage availability.

A decade ago, interest rates were 3% to 4%. Today, those loans have an 8% to 9% rate. Aging producers are looking to transition out of the business, but younger producers are struggling to fill the void.

These pressures will likely amplify the rate of consolidation within the cow-calf segment and silence opportunities for smaller operations to expand profitably going forward.

Your Next Read — Industry Shifts: What Cattle Producers See Coming In the Next 5 Years

State of the Beef Industry

Industry Shifts: What Cattle Producers See Coming In the Next 5 Years

Viability is Top of Mind

What The 2022 National Beef Quality Audit Says About The Cattle Industry

Quality and Efficiency

Some Key Findings Include:

Areas for Focused Improvement:

Eating Quality and Consistency:

Read More on the State of the Beef Industry

Good News: Consumers Continue To Choose Beef

Battle for Margin

Beef On Dairy

A Glimpse Into the Cattle Inventory Black Hole

Cows and Heifers

Dairy Cows

Calves and Feeders

Bottom Line

The Future of the Beef Industry: New Survey Data Shows Producers Are Optimistic

Looking to the Future

Breakdown of Survey Respondents

Are Cattle Producers Rebuilding Their Herds Now?

Volatility Will Increase

Rebuilding The Cowherd Remains On Hold

How Historical Cattle Cycles Are Shaping Inventory and Production Today

Supply Versus Demand