Most cattlemen are quick to point out that historically high cattle prices do not equate to historically high profitability. Inflation has hit everyone, but it has especially hit those in agriculture. Price increases for inputs have tended to exceed the overall inflation rate.

With that said, nearly every class of cattle, except bred females, has seen all-time highs.

Typically, these price levels would have prompted expansion. However, a combination of factors has led to a much slower expansion phase than normal. We will likely see expansion starting this fall, but nobody is anticipating the trend for it to be slower to change. Profits and prices are not as closely linked as they once were, and there are too many dynamics in place to have a rapid buildup of cow numbers.

It was a rule of thumb that higher prices would lead to less price differentiation. While that was the case in the past, premiums for superior genetics are not just maintaining their spreads, they are widening them. It may be true that higher prices tend to squeeze margins for niche products, but the value of genetics continues to grow. The economic ramifications of genetics — whether for feed efficiency, carcass weight, health or quality grade — are increasing, and buyers continue to factor those into their pricing equations.

The trend for price differentiation is accelerating.

Along those lines, the premium for AngusVerified^SM genetics and, to a lesser degree, black-hided cattle is larger than it has ever been.

It’s simple math. We get paid for pounds, and the incremental value of adding pounds exceeds the cost of putting on those pounds. Couple that with tighter numbers (limited supply) and every economic signal is telling producers to make cattle bigger. While there is a lot of discussion about maternal and terminal lines, about limitations to growth, and about issues with portion sizes and increased carcass weights, every single economic signal is telling producers to make them bigger. We are very good as an industry at responding to economic signals, and the current market is telling us to make them bigger and feed them longer. As long as that is the economic signal, the trend will continue.

Whether talking about the value of quality grade or the increasing emphasis on feed efficiency and red-meat yield, the conversations seem to have even more clarity than they did a couple of years ago. These trends are well-established and gaining momentum.

The trend for reducing variation and increasing predictability in hitting narrow consumer expectations is proven to be a model that improves resiliency, as well as profitability. 

Similarly, we continue to see an increased focus on supply chain development. Once again, the power of uniformity, consistency and predictability in terms of fitting genetics and management to a specific marketing target and management system has proven to increase margins and reduce risk. The trend for reducing variation and increasing predictability in hitting narrow consumer expectations is proven to be a model that improves resiliency, as well as profitability. These trends are accelerating, as well.

Health, lot size and location are still big drivers in the pricing and value equations, but increasingly they are either assumed (table stakes) or unavoidable (factored in). The value has not declined, but either the variability around these traits is declining, or producers are working on ways to mitigate the discounts. The big three drivers have been losing ground to genetics, simply because genetics is the one variable that has the most opportunity for improvement and is currently having the largest effect on profitability. This trend continues.

We are seeing producers take a more active role in the marketing of their cattle. Seedstock producers are providing more and more services in addition to strictly supplying genetics. Unfortunately, we continue to see trends continue where valuable ag land is being taken out of ag production, politicians are putting additional regulations on our business, and isolationism and geo/political concerns are increasing the risks of export markets as their value to the industry increases. Market volatility, risk and price discovery concerns remain, as do the concerns about labor, adopting technology and generational turnover. Our industry’s tendency for division may have moderated, but for society as a whole, division and contempt have replaced unity and compromise. The risk from political oversight, regulation and manipulation in our business continues to grow momentum.

Some of these trends are highly positive and will greatly improve the overall profitability of our industry and the number of dollars flowing into our industry. Some must be considered to mitigate the risk that they provide for a sustainable future.

The most positive thing about the current market and the consistency of the trends we are seeing is that producers have an extended window to take advantage of the positive trends and to position their operation for the future within the context of the negative trends.

Final thoughts

This summer I heard a couple of quotes that do a great job of summing up the current state of our industry and the trends shaping it:

“We are changing and evolving faster than we ever have, and today is likely to be the slowest period of change that we will see for a long time.”

“You can take comfort; there is no requirement that says you have to change … But you will have to compete with those who do.”

Editor’s note: Troy Marshall is director of commercial industry relations for the American Angus Association.

Angus Beef Bulletin EXTRA, Vol. 16, No. 8-B