DILLON, Mont. – Dr. Eric Belasco, an associate professor in the Department of Agricultural Economics and Economics at Montana State University, addressed a room full of cattle producers on Nov. 19 on the University of Montana Western campus for the Southwestern Montana Stockman’s Association meeting. During his talk, Dr. Belasco touched on some of the key points affecting the current markets.
Domestically, producers have shown great concern over the packing industry and often, fingers are pointed to the big four packers and the possibility they are “naming the price,” so to speak. Belasco admits, it is a legitimate concern for producers, but he also points to the fact that the hard evidence doesn’t necessarily support the claims.
“Some of the studies I have seen in the past haven’t shown that the packers are exerting any sort of undue pressure. They have shown that the packer’s margins are pretty small, but there are huge gains from scale. So, these larger processors can compete on volume, but not necessarily margins,” Belasco explained.
It is easy to blame factions of the industry not readily visible. Montana and its neighboring states are known for raising top quality calves and the area is bar none for seedstock production. Feed yards and large-scale processing facilities are not an area of the beef industry with a foothold in that neck of the woods.
Nevertheless, Belasco noted that without a doubt, cow-calf producers assume the most risk, and large swings in the market, both good and bad, affect the earlier stages of the supply chain more. For a cow-calf producer, there is a lot of risk on the output price. On the other hand, for example, feedlots are buying and selling cattle, so they diffuse their risk by assuming it on both price points.
During his talk, Belasco drew attention to the fact cattle inventories on a world scale have been dropping over the years, while beef production has leveled out. The U.S. truly is leading the charge in this regard, as Belasco said, “We are really good at putting lots of pounds on our animals.”
The U.S. consumes nearly 90 percent of what it produces with the most consumed meat product being hamburger. The remaining 10 percent of beef exported is higher-end cuts that generally, other countries are simply willing to pay more for.
On the global market, Australia has proven to be the United States’ greatest beef supply competition. Belasco explained this could in part be due to the fact Australia has really been ambitiously searching out and securing trade deals while the U.S. has remained more cautious.
Since beef is a global commodity, outside influences like politics can greatly affect trade deals, leaving producers to largely feel helpless. Belasco went on to explain how trade discussions open an interesting dialog that often pits agriculture against the manufacturing industry. A trade deal that is positive for agriculture commodities might lead to retaliatory tariffs against industrial goods or vice-versa. Finding a way to strike a balance is key.
“I think the future of this is to find out how we can be ambitious about trade, but then protect those people that are in the industries that are negatively affected,” Belasco stated.
Looking ahead, Belasco said that a definitive market prediction really isn’t possible. There is a lot of risk in the market right now with too many question marks surrounding the industry. Ongoing trade negotiations and the continual uncertainty surrounding “meatless burgers” all have the potential to impact the markets.
Belasco looks to the current prices of calves when it comes to assessing market trends. When adjusted for inflation, calf prices have largely remained flat for the past several decades. Yes, they have fluctuated slightly above and below, but given time, calf prices always settle. Right now, calves are selling for very close to their long-run average, so it is likely they have settled in for the long haul.
In conclusion, Belasco emphasized a competitive market isn’t always lucrative for all parties involved.
“Price increases and price decreases are both temporary,” he said.
Recent markets have seen increased volatility, and as 2019 begins to wind down, producers are often left wondering what awaits on the horizon. The desire is stronger cattle markets, of course, but as agriculturalists, its good practice to hope for the best and prepare for the worst.