When America's cattle industry turns the corner on liquidation and commercial producers start rebuilding herds, there will be a two-fold opportunity.
On the commercial side, cattle producers will have a natural opening to evolve the genetic side of their operations. On the seedstock side, demand for improved genetics will bring both a marketing boost and more insight into how commercial demand may have changed since the last rebuilding cycle.
The seedstock side of the cattle business is already positioning for the shift, with fall 2022 bull sales giving some evidence of the demand to come. Chip Kemp, with the American Simmental Association (ASA), said he is already seeing more producers tuned in to the idea of choosing the right kind of stock for their environment and their marketing programs.
He added this emphasis doesn't necessarily add up to a purebred bull these days. Rather, Kemp explained, many seedstock suppliers today have positioned themselves to take advantage of increased demand for hybrid vigor in the commercial cow herd.
"We need to bring cattle with enough terminal metrics, balanced with longevity," Kemp said, stressing that actual metrics are key. "Don't just say, 'My cattle are maternal.' Producers today want real facts."
Kemp believes the ASA has done a good job of focusing on the use of composite cattle to develop the right animal to fit a given producer's environmental settings, with an eye toward long-term sustainability. He agrees that a period of opportunity is at hand for the beef industry, following massive herd contraction over the past two to three years.
"When the industry sees herd size contract, whether it's due to environmental or economic factors, it also creates this period of opportunity," he said. "We only get opportunity in the beef business when there is a bit of unfortunate pain. Right now, I'd say we have to focus on the fact that there are things we can do to position ourselves better moving ahead. If I can build a cow herd that's low cost, with the right terminal and marketing metrics, that is a win for me."
In addition to drought, which is behind much of the liquidation still ongoing today, Kemp said COVID has also helped shape the changing industry. He believes it altered the playing field for packers in terms of being able to work with higher carcass weights. That is key to the direction he thinks the industry will head when rebuilding really catches fire.
"We see that feeders and packers can make live weights very heavy and still be effective and efficient when they do that," he explained. "We are seeing 1,600- and 1,700-pound live weights with minimal or no discounts, and it looks like we are going to stay there. So, in some of our female decisions, we now have to consider a breeding and marketing strategy that allows me to accept that this is the future. There is no lone breed of cattle that gives me a 1,600-weight fat steer, as well as a daughter I can afford to own as a replacement. That is a unicorn in the purebred world. But, with forethought and planning, hybrids can readily navigate this balance."
The Simmental breed today is well-known for producing and embracing composites and hybrids. In the future, Kemp expects to see generational shifts in what he calls "brand loyalty" to breeds among commercial cattle producers. He thinks this shift will lean toward more demand for the right composite to fit a given commercial operation.
"I believe the next few years will be that defining opportunity for markets and for genetics across the cattle business," said Kemp. "We are going to look back on this time and know that it will have made a lot of family operations stronger and set their path for the future."
American-International Charolais Association Executive Vice President Clint Rusk has also observed strong numbers at 2022 sales and said producers in his organization are looking forward to spring 2023 sales.
He reports the herd liquidation he's been seeing has been mostly drought-driven but added that going into fall 2022, he was seeing some outstanding cow herds even where pastures were stressed.
"I was in Nevada in early August. That is traditionally dry, desert country. But I saw one of the best commercial Charolais herds at Golconda. We drove out there to look at the cows, which were on about 80,000 acres of pasture. I expected to see thin cows with lightweight calves. But, instead, they were in good condition. I don't know how they were making it, but they looked really good, and the rancher was not providing hardly any supplemental (feed). The cows live off of that pasture, in that environment, year-round. It shows you how tough and hardy the Charolais breed is today."
Asked if he thinks producers will intentionally work to improve herd genetics as the industry rebuilds, Rusk said that depends on the breeder.
"When we look back to 2014, for example, I don't know that most producers really saw those rebuilding years as a path to improved genetics. They sold their poor-quality cows, and the fortunate breeders who could keep some of the herd, kept the best ones. If you could send your cows to another part of the country to graze, you did that. We've seen some of those same strategies employed in this most recent phase of contraction.
"In 2014, the fortunate producers survived, and when they came back, it was with better genetics because that's what they kept, and that's how their herds were concentrated moving forward."
Today's commercial producers looking to add pounds to their calf crops are often looking to the Charolais breed to help accomplish that, Rusk said. "A Charolais bull adds pounds, performance and efficiency to a calf crop. That's something we all look for, cattle that grow fast and are efficient. Charolais also cross well with a number of other breeds, especially British breeds."
Moving into spring 2023, Rusk said Charolais producers will have a good supply of bulls, because during times of liquidation, breeders tend to hold bulls back as a first-line revenue source.
"Producers love to keep all the cows they can, but most of them can drylot bulls, so they are raised and developed in confinement. This gives producers animals to sell, and they aren't as dependent on forage production when faced with a drought."
Rusk said that as the cattle industry starts to shift into higher expansion gear, it is a reminder to him of how resilient and positive the cattle producers in this business really are.
"Even when they are in a drought and they know they have to cut back, they are still optimistic. They always look to next year, to the next rain. Cattle folks are survivors. They're family, and they don't get out of the business the first time they face a few challenges."
HEIFER, COW BUYING SLOW
When it comes to Red Angus, liquidation isn't how Harold Bertz would describe the last couple of years for seedstock producers. He said, at most, guys have culled a little tighter than normal, but he hasn't seen much of what he'd consider liquidation.
Bertz, director of commercial marketing for the Red Angus Association of America, reports bull sales in 2022 were strong, with some of the highest average prices he's seen in years. On the female side, he said they have seen some changes, tied 100% to moisture availability.
"In the spring, most of our bull sales are primarily in the Central Plains and Montana," he said. "In the fall, we see most of our sales further south, Oklahoma and Texas. There we saw less female buying, but no one was backing off of bulls."
Bertz said that even with today's high cost of freight, he hasn't seen producers afraid to move cow herds to other regions to graze. And where there have been rains, there has been some aggressive buying of replacements.
Asked if he thinks the industry is seeing a pattern similar to that of 2014 and 2015, he said he does.
"For me, I see a lot of the same things. Unfortunately, when there is a massive price increase in the beef industry, you know it took a lot of things going wrong to get us here. But we aren't unaccustomed to challenge."
Comparing 2021 to 2022, Bertz showed an increase in bull sales, going from 9,093 for the 2021 sales season to 9,443 for 2022. Average prices in 2022 came in at $5,125 for the spring sales, compared to $4,977 for 2021 spring sales. Fall 2022 sale prices were still coming in at publication time. The numbers and prices reported, noted Bertz, are for sales the group's marketing team members attended.
"I do believe we will see more price increases, at all levels, and it will start when we see real pressure on fed cattle. That will drive up feeder calves. We've seen some wild prices already moving into late 2022, based on delivery times. I think we are going to have a solid fall at the sale barn, and after the first of the year, it's Katie bar the door. I hope this upturn lasts longer than the last one."
FEEDERS, GENETIC INVESTMENT
Feed efficiency is where the Hereford breed shines, and Joe Rickabaugh said he thinks this will be a key area of emphasis moving into herd-rebuilding.
"With what we've seen feeders and stockers bringing through the fall, we believe producers will have more to spend on seedstock. Historically, when they have the ability, cattlemen invest in better genetics for the commercial side of their operations," said Rickabaugh, director of seedstock marketing with the American Hereford Association.
Moving through the fall and into the end of 2022, many producers will be cautious buyers, he believes. Come spring, though, he thinks the market will heat up fast.
"I believe we will have a shortage of breeding stock females to go back into herds," he said. "People will want to restock if they have the moisture, but supplies are going to be limited. I think spring could be awfully good for our bull market and for the replacement female market. It will all hinge on how we come through the winter. If producers spend it all on feed, the money won't be there. But if we can hold onto the dollars and have an average winter, I think we will see an exceptionally strong market."
DEMAND STAYS IN THE BLACK
It's been a tough last couple of years for many in the cattle business, but David Gazda said demand on the Angus side continues to trend up. Like others following the seedstock side, he believes spring 2023 is going to bring opportunity to many in the industry.
"Even though we've experienced extended drought and a subsequent partial liquidation in the western two-thirds of the country, the continued demand for registered Angus bulls has remained strong," said Gazda, director of field services for the American Angus Association.
A veteran of the Angus business, Gazda has been with the association for more than 30 years, so this isn't the first cattle cycle he's lived through.
"We have seen very little price difference in what producers are paying for registered Angus bulls," he said, comparing 2021 and 2022.
"For fiscal year 2022, we recorded 51,800 registered Angus bulls sold, with a $5,909 average price," he said, noting those numbers are from sales reported by association field staff who attended more than 800 sales over the course of the year.
"That was up from 2021, which is significant when we look at where we could have been due to environmental and market conditions, and the rising cost of inputs. It could have been a completely different story, but we have stayed strong," Gazda said, noting that in 2021, 51,319 registered Angus bulls sold, at an average price of $5,547. The numbers, he added, don't include private-treaty sales.
"We are seeing strong demand, even with the uncertainties that exist in the industry," he noted. "That says a lot about the optimism of cattle producers. Cattlemen and farmers are optimistic and recognize weather and its subsequent environmental impact are simply out of our hands."
Asked about trends on the female side of the business, Gazda said most of those sales in his southeast region are held in the spring. Because everyone is in essentially the same position regarding what their feed supplies will be going into winter, interest next spring will depend on how much producers have to spend on supplements in the coming months.
"A large part of the country is experiencing hay deficits," he said in early October. "That deficit is especially critical where we have seen extended drought, but hay is reported to be in short supply throughout the country."
Gazda said he has seen instances already where producers in parts of the West are starting to restock. But it's not without some risk.
"We are seeing producers who have already begun to restock because they know how challenging and expensive it will be to acquire replacement females in the coming market. At the same time, they are taking on a bit of risk, due to those big unknowns ... hay and feed supplies, pasture conditions, and other input costs."
As producers do begin the rebuilding phase, Gazda believes they will be looking not just at improving genetics, but also at matching cows to end production goals and their environments.
"As input costs continue to increase, producers will become more focused on sourcing those genetics that more closely match their environment, individual management abilities, and production and marketing goals.
"Here in the Southeast, for example, we have an environment that gives us something green and growing 365 days a year, so our management programs tend to be heavily forage-dependent. Whereas in the Midwest and other areas of the country where they have that ability to more easily supplement with some other type of feed stuff, their strategy is different.
"That ability to build a herd on your management strengths, environment, production goals, and marketing strategies is the combination that I believe creates the greatest opportunity for profitability for cattle producers in the future," Gazda said.
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