Not surprisingly, the marketplace seems to be focused mainly on moisture conditions, supply and demand. But a keen eye also is focused on outside forces that might affect us in the near term, like the overall global economy and possible furloughs of meat inspectors, etc. In addition, we’re all looking toward the future with an expectation of improving prices in the backdrop of continually escalating input prices.
Those are the factors affecting our industry’s bottom line right now and for the foreseeable future. The value-based marketing revolution, price differentiation and the like, which were hot topics just a few years back, have slipped into the background for now. With cattle supplies historically tight, no one will have trouble commanding good prices over the next few years; it’s the very definition of a seller’s market. There is no concern about market access or finding a willing buyer.
Still, we do know that numbers eventually will increase, or capacity will be reduced up the chain, which will bring more balance to the marketing equation. In fact, higher prices for both cattle and inputs have actually significantly increased the price spreads between above-average and below-average cattle. The incentive for price differentiation and value-based marketing is increasing, even though the market signals aren’t reflecting the shift.
Perhaps, more than ever, this unique market situation provides producers with an opportunity to make the genetic and management changes needed to create a more consistent, higher-quality product with greater efficiency. In today’s market conditions, producers will have both the time and dollars to make necessary changes without the hardship that typically occurs with shifts in the marketplace.
Just because every animal is a valuable commodity today, the cattle market is still moving in the direction of paying more on the basis of value to the entire production system. And, as is usually the case, that is very good news for the top third of producers (the most efficient), a warning to the middle third of producers, and very bad news for the bottom third (least efficient) producers.
One thing we sometimes forget is that the effects of the drought and high input prices have ratcheted up the competition. Poorer cows and poorer producers are being eliminated, which is increasing the average line. Genetic improvement is coming today at a phenomenal rate. What was above average just 3-5 years ago is average today, and that will be below average 3-5 years from now.