Nalivka: Other Important Factors at Play in Cattle, Hog Markets

As cattle numbers continue to fall in the wake of the 2021-2022 drought and significant herd liquidation followed by sharply higher grain prices, factors that may not have seemed nearly as important become critical and impact both the market and market participants. Those impacts will reach across the supply chain. 

Corporate announcements of changes (reductions) in plant operations are one impact.  Tyson’s announcement this week to close their pork plant in Perry, IA at the end of June is perhaps the first of similar announcements by other firms as the year progresses.  While it concerns the pork industry, I believe this announcement is a sign of “more to come” across the red meat supply chain.  

The economic environment of both the beef and pork industries has changed.  It is having an impact and will continue to impact on the beef and pork industries, including livestock numbers, utilization of capacity across the industry (beef and pork), labor, water and other environmental factors, and consumer demand. 

I recently told a client that while forage availability and prices drive the cattle cycle, other factors will increasingly play a greater role. Further, in analyzing red meat and poultry markets, total meat supplies and competition at the meat case has always been a key part of the discussion. While it is certainly still part of the discussion, the role of total meat supply in price analysis may have changed as consumer preferences change for reasons we have not traditionally considered. I continue to emphasize the importance of demand as a key factor as the year progresses.   

Capacity is a critical issue for the red meat and poultry industries and utilization of that capacity has a significant impact on margins.  I can only emphasize that point. This is true regardless of the industry and/or the industry sector whether it be as in the case of the beef industry - packers, feedlots, and yes, even cow-calf producers.  Replace feedlots with a finishing operation for the pork industry and the list is just as inclusive.

Market impact goes beyond the supply and demand.  There are other consumer-driven factors that are becoming increasingly important - an increased government role in the market with increased regulations, changes in global trade and global trade policy decisions, and even the politics of an election year that could impact both the supply and consumer buying over the remainder of 2024 and beyond.  The end result is not necessarily negative, but the likelihood of increased volatility is a reality which in turn supports the need for increased awareness and to actively manage risk.