A Few Thoughts on Marketing Cattle in a Changing Industry
October 3, 2018
In today's world, there is no shortage of information and the beef industry is no exception. If you are so inclined, or more importantly, if you have the time, you can watch markets all day long. However, I know most ranchers don't do that, and in addition, they probably would find it may not add much to their decision-making. Having said that, I do believe there is value in spending the time to look at the various marketing programs in the industry and analyzing if they may be a good fit for you. Of course, the decision will also take into consideration your location, your cattle, and longer term adjustments you may have to make. Depending upon the program, the decision to participate in a value-added program can be long term.
This year drought in many areas of the country has definitely been the primary factor in production and marketing decisions or perhaps, outcomes, this year. But, the market has performed relatively well given the increase in U.S. beef production. And that is not to mention increased pork and poultry production leading to record total meat supplies. So, what has supported the market?
I will start with the factor that you as a rancher have little control over – exports. Through July, beef exports were up 15 percent over a year earlier, at a 24 percent higher value. In the face of the much-discussed trade dispute and "tariff battle" going on today, markets continued to perform well. In fact, with regard to market performance through the July, I might submit that any additional tariffs imposed on U.S. beef mostly led to market uncertainty.
U.S. beef exports continued to surge even in spite of a strong dollar and added tariffs. I have said, and continue to say, that while China presents a great deal of potential for U.S. beef export sales, our growing global markets continue to be Japan, South Korea, Mexico, Hong Kong, Canada, and Taiwan, representing 88 percent of all beef exported by the U.S. U.S. beef exports to Japan (our largest customer) through July were up 9 percent over a year earlier with an 18 percent increase in value. Our exports to China through July represent 1 percent of total U.S. beef exports. So, while I do not disparage opportunities with China, our agreement or agreements with Mexico and Canada are more important.
Let's move on to something that you as a producer can manage for and enhance your top line – U.S. consumer preferences for beef. There is no denying that U.S. beef exports add value to the market and it is measurable. But the remaining 90 percent of production is sold here.
Significant growth during 2017 and 2018 in the U.S. economy has definitely been positive for U.S. beef demand. But, I believe that growth in branded programs to meet growing consumer preferences for natural and organic as well as other specific criteria for raising beef have been even more critical to growing demand here at home. To begin with, the industry shaved off the bottom third and poorest cows when the U.S. herd was liquidated, reaching a 60 year low in 2014. That immediately led to a greater opportunity for higher quality production. At the same time, programs began paying premiums which motivated cattlemen to further improve herds through genetic selection as well as reducing the use of hormones and antibiotics. The end result – higher quality, healthier cattle with increased value that better met consumer demand. This is significant and will continue to pay dividends down the road.
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The industry must remain focused on these significant changes and the consumer. My recommendation is to at least look into the opportunity presented by branded programs. While premiums generally range from $100 to $250 per head, you still have to do the math, particularly when retained ownership is part of the decision. But at a very minimum, the management protocol will likely create long lasting value for your herd and your resources. There are benefits to being closely aligned to the consumer and they will add to your top line. It's all about "producing the right cattle for the right market" and managing to not only add value but to "capture that added value".