Lance Zimmerman is the Senior Beef Analyst for Rabobank. Prior to joining Rabo, he has worked for the Certified Angus Beef Program and Cattlefax. He holds a BS in Ag Communications and an MS in Ag Economics from Kansas State University.
To access both the summary and complete report we discuss, go to:
Rebuilding with resiliency is a necessity for the US beef supply chain (rabobank.com)
Contact:
Lance Zimmerman (rabobank.com)
Lance Zimmerman is the Senior Beef Analyst for Rabobank. Prior to joining Rabo, he has worked for the Certified Angus Beef Program and Cattlefax. He holds a BS in Ag Communications and an MS in Ag Economics from Kansas State University.
To access both the summary and complete report we discuss, go to:
Rebuilding with resiliency is a necessity for the US beef supply chain (rabobank.com)
Contact:
Lance Zimmerman (rabobank.com)
Thanks for joining us for episode 53 of practically ranching. I'm your host, Matt Perrier. As always this week's pod is sponsored by Dale banks, Angus that Eureka, Kansas. Lance Zimmerman is the senior beef analyst for Rabobank. You will hear me absolutely butcher his title here in just a bit when the podcast starts, but, uh, officially he's the senior beef analyst for Rabo. He has served in various capacities throughout the beef industry over the last couple of decades, with some of the top beef marketing and production companies that you can think of. And I've always appreciated Lance's perspective and his viewpoints on the dynamics that kind of make all segments of the beef industry work. I invited Lance on the pod about a month ago, but little did I know that the last week to 10 days would provide so much extra fodder for our discussion on market analytics right now? You know, we cover several of the recent goings on in the beef industry. Plus. We go in depth about a white paper that he released just last January, that he calls rebuilding with resiliency is a necessity for the U S beef supply chain. And that's a mouthful, but as we all know, from watching the beef industry over the last, uh, several years or several decades, There's a lot that goes into it. And Lance covers a bunch of that. Uh, from a lot of different views and a lot of different perspectives in this paper. Now I have included a link to both his summary and the full paper in our show notes here. Plus I've got Lance's contact information there. If you ever do want to get ahold of him, he's very accessible and, and I'm very willing to hear different ideas and different, uh, folks opinions on, on both his work and just the beef industry markets in general. We've had a couple of fairly practical, practically ranching episodes the last month or so. So this one may be a little more. Altruistic and analytical. But I think these discussions and these exercises are important. Uh, they help us. I consider what our industry can be, not just what it is today. So thank you as always for tuning in to practically ranching. God bless you all. And enjoy this conversation with Lance Zimmerman.
lance-zimmerman_2_03-26-2024_111328:Doing great. Uh, getting A little surprised by snow on the ground. We were, we were enjoying those 80 degree early, uh, days we were getting in March. So to get 30 degrees and some snow in little Manhattan, Kansas, is a culture shock today.
Track 1:Yeah, between the weather and the markets, which is what we seem to spend the most time on, but have the least control of here in the beef industry. what the old adage, may you live in interesting times seems to, uh, seems to come up. And, uh, yeah, we're not going to talk about the weather, but when I've got the. Lead Beef Analyst for Robbo, Beef Analyst, whatever your formal title is, we're we're sure going to talk about markets and so Yeah, we have definitely lived in interesting times for the last even just couple months between what the cattle inventory report a month or two ago and, and, setting record all time highs for fed cattle last week, I believe. And maybe a bit of a bearish on feed report. I don't know which interesting times that we want to start with, but, uh, You tell me, what's, what, what are you seeing there on the tea leaves in the, in the recent stuff that we've been seeing in the beef cattle industry?
lance-zimmerman_2_03-26-2024_111328:Well, and it's funny you mentioned, you know, in the last month or even year to date with a lot of those comments, heck, it's, it's been an interesting week, you know, we, uh, last Wednesday, a plant fire at national, which thankfully is as far as, as far as plant fires go pretty minor situation. They only had a four hour delay on Thursday and by all appearances, they're, they're back, back up and running. It basically affected the, the loading unloading area. It sounded like, but then, uh, You know, you start hearing some rumblings over the course of the last week or so of, um, some, some problems in dairies across, uh, the southern plains of the U. S. Um, not, not understand what's going on. And the official news comes out yesterday from APHIS that, uh, some dairy operations confirmed in Texas, Kansas, and I believe New Mexico, um, Contracted high path avian influenza. And so that's the first we've heard on a global basis of infections in in bovine. I think we had a goat at one point. We've we've heard about it in some other species. But, uh, so, yeah, even interesting times just in the last several days, right?
Track 1:Well, there's always arguments whether that was a blessing or a curse that, uh, whoever was started using that, uh, interesting times line was, but, yeah, it, it can be either or both. Um, so let's, let's move on. Let's start, I guess, with the fed cattle price record that we set last week. Uh, I think a lot of folks were talking about, we're going to see 2 fed cattle on a live basis, and we've surpassed 3 on a carcass basis, I think, last week. Um, it's probably no surprise, but when it starts pushing up close to that, it gets people talking. Where do you see it going from here? And, and, uh, is that a good thing or bad thing for the industry from a consumer demand standpoint, things like that?
lance-zimmerman_2_03-26-2024_111328:Oh, great. Yeah, no, a lot to unpack there. I think, yeah, there's, there's certainly some more upside, I think, in the short run on this fed cattle market. You know, you, you talk about seasonals a lot in the ag industry and seasonally, uh, you'd expect us to probably put in the highs over the course of the next couple of weeks. The futures market kind of did its job. The futures market generally tends to lead the cash and it's kind of signaling to us that it's, it's short run rally may be over now. We can talk about all the reasons why that could be the case, whether it was cattle on feed, whether it was some of this high pass stuff, whether it was just traders in Chicago decide and they wanted to book some profits, right? Um, But I think strictly from a fundamental standpoint, you have a couple of weeks here where, uh, cattle feeders can maintain some pretty good leverage in the market. And I think quite honestly, we're in a period of time because of the supply infrastructure that exists around us. Cattle feeders won't have to hand a massive amount of leverage back to the packer anytime soon in here, barring some kind of catastrophic type event, which is, you know, we just listed a couple of those potential examples that that could rear their ugly head depending on how things play out over time. But as we look at it, you mentioned the 2 highs. I'm I'm of the opinion that the shape of this year's seasonal to come back to that discussion on the Fed cattle side. doesn't have to look a whole lot different than what it looked like last year. In other words, if you think back to 2023, at least through the first nine months of 2023, uh, we put in a spring high, the market took a little bit of a breather after a really good run. Uh, we didn't really break significantly through the summer. Uh, those summer lows were pretty muted in the grand scheme of what summer lows look like in the fed cattle market. And we started charging higher through the 30s. Third quarter. Uh, the part that kind of rewrote the playbook for all of us, whether you were a, a feed yard stocker operator, cow calf guy, was that break from mid-September to December. Right? That, that wasn't in anybody's deck of cards. I think as we, we looked at what happened, uh, and there was a multitude of factors as to, to why some of that happened. But as we look at it for this year, my expectation would be that it's sideways to softer when typically seasonally, we would say it would, it would grind lower after the spring highs. I think it'll be a little bit more of a sideways to softer trend. And then I think 2 is in the cards as we look to the fourth quarter, uh, that elusive 2 that it seems like we've been chasing for about 12 months now. But I do think before the end of this year, we'll get there. And of course, um, The one deviation I would say is, is the high in the first half of the year in these next couple weeks as I've lined out, or could we have a late May high? I think those are the two periods I'm looking at. And really, the late May high is going to come down to that demand question. You know, right now, a lot of this rallies come on the back of really strong chuck and round values, 90 percent lean trim are at unheard of price levels, not really a fed cattle product. That's a product out of our cow and bull mix, but it matters, right? Because it provides some underpinning and support of those end meat primals and the trimmings out of the fed side as well. Um, so you're sitting here talking about, you know, You know, 3 plus nineties and little over a buck fifties. Um, that that's our market for burger. And what we got to remember is, uh, the U S consumer consumes more than 50 percent of their beef in between a bun or in a taco shell or on top of spaghetti, it's ground beef. And, uh, and so all those things matter, as you think through shaping expectations for 2024.
Track 1:And anybody that's taken an old bull or group of cull cows to town has been, uh, has found that out pretty quickly. Just how strong that cull cow and, grind market, uh, has been. So let's touch a bit here on the most recent, on feed numbers. And I think probably the biggest surprise in there, at least folks that I've listened to and talked with would have been the placements and we keep hearing, Oh, we've pulled cattle forward and the drought and all these reasons that placements continue to stay above where we think they'll be at what point after three years, do we finally go where the world of these cattle coming from?
lance-zimmerman_2_03-26-2024_111328:No, it's it's a good question to ask. Um, and quite honestly, and in the realm of cattle on feed reports, I think it's good to for for your listeners to understand where error can come from in these reports.
Track 1:Sure.
lance-zimmerman_2_03-26-2024_111328:There's very little room for error in a slaughter report. Those numbers are very well known by our agency officials on the ground. If it kills in a major federally inspected packing plant, it's accounted for. And so with near 100 percent certainty, we know slaughter. Well, ironically, if you dissect the pieces of a cattle on feed report, and compare marketings of those thousand head feed yards and up in that cattle on feed report. And you look at that percent year over year change in each one of those monthly reports and line it up with the percent year over year change in those monthly steer and heifer fi slaughter numbers, nearly identical. Um, uh, not, not, not a perfect correlation, but enough so that we can have some confidence that those two numbers line up really well. When we look at placements though, you always get a wide range in that placement number relative to a lot of the other numbers that we see as an industry. Uh, you alluded to the cattle inventory report. If we look at January 1 supply of feeder cattle and calves outside of feed yards, we can calculate that from the cattle inventory report. It's steers over 500 pounds, other heifers over 500 pounds calves under 500 pounds minus. Cattle on feed. If we look at that number on January 1, that's essentially the pool of cattle that we are going to draw into feed yards over the course of the next 9 to 12 months, roughly. If you look at that number and you look at it against placements over the next 12 months, you get good correlation, but not great. And some of that is because of drought. We're pulling cattle ahead, we're pushing cattle back so that what that snapshot was on January 1 doesn't always line up with the next 9 or 12 month total.
Track 1:Sure.
lance-zimmerman_2_03-26-2024_111328:But you also have to recognize that both the cattle inventory report and the cattle on feed report are only surveys. And so you have to accept the fact that the data is only as good as the survey instrument. And, you know, one of the things I love to tell producers is you have the right to complain about the quality of the data in the survey if you participate in it. But if you're telling me you don't submit your survey response, if you're telling me you ignore that government official calling you and asking you for your inventory numbers or what's going on on your information, then you forfeit the right to complain.
Track 1:That's fair. That's fair. We probably should have that once you call Zuckerberg and Elon and everybody that runs social media and make them put that disclaimer. If you've been part of the discussion leading up to this challenge we're having, then you can gripe and comment. If not,
lance-zimmerman_2_03-26-2024_111328:Exactly,
Track 1:keep it to yourself. Yeah, that's, that's, that's good. That's a good answer.
lance-zimmerman_2_03-26-2024_111328:And so what what you're left with, though, is, you know, our, our, our bureaucrats that are left crunching these numbers and publishing these reports, they get incomplete data. Some of it's because the guy they're trying to call or the guy they're trying to get a survey response from doesn't want to. Some of it though, is simply because man, sometimes life's just busy and it comes at you fast. And man, for this particular month, I lost an employee at the front desk of my feed yard who they were the dependable one that pulled the turnkey sheets or, or, you know, grabbed whatever we needed to from the, the financial accounting systems, and they filled it out and they knew it well, they left. And so it was up to me. And well, I couldn't do it because I was out helping people out. ride pens or check bunks or whatever else hit. And I missed a month or two until I got somebody else coached up. Well, the government then is left with, we had this data from this yard for the last five years. And all of a sudden we're missing a couple months. What do we do? Do we leave it blank? Do we look at some of his neighbors around and just accept that? Well, what happened to him is likely the trend that happened there. You can get some error. In those placement numbers because sometimes you just you miss data points and it's really difficult at times to same sample adjust from one month to the next and in my opinion and in over a dozen plus years of looking at these reports I think we go through areas of time where the the report's not infallible from a placement perspective and usually that happens in times of transition When the industry is going through big contraction swings, when the industry is going through big expansion swings, when we have the feed yard industry going through transition, and you know, we think back to, let's call it 10 years ago when we lost a major plant in Texas. All of a sudden, a lot of yards in Texas went from being finishing yards to grow yards. And as that happened, You know, it left opportunity for error in that report because those feed yards might not have always done a great job of communicating with the USDA. Hey, we're not a finish yard anymore. and so that's why we're not reporting these numbers. And then the government's left with figuring out, well, how do I adjust this sample now going forward? Because they were participating in the past, but now they're not. And so. I do think that there's reason to call into question any of those government reports because we want to make sure we have good data because we're using it as as producers and beef merchandisers. The trade is using it in Chicago. Um, and so having dependable data is important. If we don't, it's a major risk to this business. Um, As I look at the last 12 months, uh, of placement numbers and I look at them compared to other industry sources, you know, I think there's reason to question maybe whether placements were quite as strong last year as they were mostly through the spring and summer. But as you look at the fall and winter numbers, they kind of make sense. We understand why we had a surge in placements through, through that fall winter period with early weaning and other things that came. came up throughout the course of that time. The challenge is if you get into a period where you believe placements were overstated for a long run or understated for a long run, that error hangs out in those reports for a long time because you need offsetting error to eventually wash it out. Uh, and so we can be in a situation where if we want to believe that placements were overstated through this period of time, that could lead to the first of the month cattle on feed inventory staying above what it is in reality for 18 24 months because you need the offsetting placement error. Because I already told you, marketing is nearly perfect. It's, it correlates very well with slaughter. It's that placement error that can actually have a pretty long tail to it. Long story short, you know, we're sitting here with March uh, one cattle on feed numbers at, what was it, 11. 8 million head roughly, if I remember right. That's still a top five cattle on feed inventory. Um, at the same time, Not all cattle inventories are created equal. When we talk about on feed inventories, we're feeding cattle a lot longer today. Um, you know, we're feeding cattle 180 days or more in many instances. And so you're going to carry more bunk space. What it does is it means. As we have a declining cattle supply, it's going to take longer for it to get to the feed yard, and ironically, as we rebuild cattle supplies, it's going to take longer for those additional cattle to also show up in that on feed report, just because everything's going to move slower as you think about that feed yard supply, it smooths out a lot of the volatile ups and downs we may have in the total cattle supply.
Track 1:And as I was reading. This most recent cattle on feed report and, and was asking myself, same question I asked you, where, where are these cattle keep coming from that we're placing on feed? I got thinking about, you know, sometimes, and I've brought this up on this podcast, before, but beef cow, calf producers sometimes are looking for some kind of a scapegoat and recently, sometimes that scapegoat, if it hasn't been imports of feeder cattle, it's been beef dairy crosses. And most times I am the one who's saying, look, we're just replacing a Holstein steer, probably with a half beef, half dairy steer of some kind. Then I got thinking, okay, knowing what I know about heterosis and hybrid vigor and affecting lowly heritable traits like fertility, Are we actually getting more of these Holstein cows pregnant by AI ing them to beef bulls, outcross bulls, and therefore having more calves come off of these dairies than we used to? And, and I'm going to have a podcast with Dr. Temple Grandin here, and, and, uh, I know she's going to talk about how sometimes dairy calves never made it from the dairy to the calf ranch. And, um, you know, from an animal. Welfare standpoint, that's an improvement that we've made, but it's also going to increase the numbers. are we actually getting more calves off these dairies?
lance-zimmerman_2_03-26-2024_111328:we are around the edges. And you mentioned a number of different examples. One, the genetic side of it, the folks that are involved in a lot of these beef on dairy programs will say that you do gain a small percentage in conception rate. What we have to remember, again, I'm going to assume that most of your listeners are on the beef side of the business. Success in breeding rate in a beef operation, uh, looks like an absolute grand slam compared to success in conception rate in a dairy operation. I keep in mind, I'm a, I'm a senior beef industry analyst, not the senior dairy analyst for Rabobank, but I would tell you what I've heard is, you know, if you get a Holstein mature cow to have a successful, uh, conception after two to three breedings, you're happy. Uh, where I think most of us in the beef industry, we want to turn that bull out. And, you know, an ideal situation is 45 to 60 days max, and we're pulling them and he's gone and whatever's open after that is hamburger. Right. And so, um, and so you do get a small gain around the edges and man, trust that the dairy industry, they quantify what a small advantage around the edges is from a margin standpoint. They have a very dialed in production system. So you're correct in that we probably are getting just a small tick there. Then the other thing that we have to keep in mind, and as you were, you were setting me up on the question, I was actually trying to pull up the data. You have to recognize as an industry, we've also had a long run decline in veal production. And if you look at calf slaughter today, in 2023, we slaughtered 286, 000 veal calves, 286, 000. If you go to 2019 Right. Prior to the pandemic, it was 580, 000.
Track 1:Wow.
lance-zimmerman_2_03-26-2024_111328:So we're, we're almost, we're essentially just a little under half, right? Yeah. And so you, where you have a precipitous gain is there because dairy cow numbers haven't shifted, right? When you look at the dairy cow herd, we're, we're pretty darn consistently plus or minus around 9. 3, 9. 4 million. Head, you know, more recently, it's been it approached 9. 5. You know, wasn't too long ago. We had some dairy herds are around 9. 2. So I just kind of shoot down the middle there. And so we've had some gains there as well. The trade off is as we have more of these beef dairy mixes in the system. And again, maybe there's some small gains in pregnancies. But by and large, you're just swapping an animal out, a whole steam for a beef dairy cross. The advantage comes in that we're gaining some turnover rate. We can trim a few days off a feed on these animals. Again, kind of like the conception discussion, you may be able to trim 30 to 60 days off, but that's still significant. And so maybe you're gaining some conception, you're gaining some turnover rate in the feed yard. But the real advantages are it's, it's a little bit more of an intentional system, where I think in the past, feed yards would buy these Holstein cattle, they'd pretty much run them, they certainly feed them longer than a native beef animal, but they weren't real intentional about trying to drive a quality grade increase, trying to drive towards a branded program target, trying to do some of those things that we all hear about with these products. Beef dairy based programs, and so they were leaving some potential maybe on the table, where we're now with a little more intentionality. I think they can take a premium animal coming in compared to what it was, and they can market it to a premium end point again compared to what they traditionally did with just a straight Holstein. And then you're gaining a few more Heifers in this process as well, because before these dairies would keep a higher percentage of their heifers at home and look towards developing them as heifer replacements. And I think that's the thing that for all the excitement about growth in this area that we've not realized, I think we're going to fall short of some of the numbers being thrown out there in terms of what this could become in the dairy industry. Because you talk to a lot of the dairies that are around and being affected by this, they're saying, we may have taken it a little too far already, because the heifer numbers are a little bit tighter around us than we would like. And what I mean by that is the biggest commercial dairies are largely the ones doing this. It's, it's happening everywhere, but the biggest participants are generally speaking, the biggest dairies. Pre, beef dairy program, they'd keep a pretty wide swath of heifers, because again, they had 50 percent pregnancies roughly heifers, 50 percent roughly bulls. Um, they'd keep a wide swath, they'd develop a wide swath of those heifers, and then whatever they didn't keep, they would still sell as bred heifers, that second cut, dairies would buy those genetics up, because much like a smaller, commercial beef cow operation, sometimes it's just easier to to lean on somebody else for for your genetics than trying to develop them out yourself. And I understand that. Well, now, with the precision that we're pursuing in the dairy industry with these beef on dairy mix, they'll use sexed heifer semen on the ultra high performers of just what they need among those heifers and kind of second calf cows. that number really refined and have a much smaller volume of the second cut that they're offering on the secondary market. And so what you've created is a shortage of replacement heifers now in a lot of key dairy producing regions. Markets have a way of fixing Voids if all of a sudden I know I can produce a few more heifers the next turn and get a little bit more for him. I'm going to lean that way versus sitting here and trying to produce beef dairy mix steers or I guess steers and heifers on the backside. So we've talked about this getting to four or five million potentially head, uh, out of dairies. I think we're already at about three to three and a half million based on estimates I've seen from cattle facts and others. I think those numbers are pretty close, but I think the target may be closer to three and a half to four million at where this thing kind of peaks out, um, based on a dairy cow herd that stays around that 9. 3 million or so. Yes,
Track 1:Well, that makes sense. And, um, you know, dairies have always been very good at taking data and quickly making adjustments, probably much quicker, not, not no probably to it much quicker than, than cowboys do, um, you, and we're going to put the cowboy hat back on for just a second and move away from the dairies. Um, here a couple of months ago, when it was, I think right on the heels of that January inventory reports, you released a paper that you had been working on. I'm sure before long before the January, inventory report, but I think you titled it rebuilding a resilient. Beef herd. Give us the, for those who haven't maybe read and maybe a refresher for me, give us the executive summary, if you will, of that paper, and then I'd like to drill a little deeper because I think there was some very interesting perspectives that you had in there and some topics for discussion that would really resonate with a lot of our, our listeners.
lance-zimmerman_2_03-26-2024_111328:Yeah, I'll start with the thesis in terms of why the paper even exists. Was, was a hatchling of an idea. Um, I, I'm big on the benefits that have come from the demand growth that we've experienced as an industry. You know, I'm a, I'm a child of the 80s and 90s. So I, I remember attending industry meetings with my dad and my grandpa and others, you know, when we were lamenting about how, uh, How in the world do we get demand back? Because when I was a kid, it was all talk about the doom and gloom and all the demand we'd lost for 2030 years at that point and thankfully around the late nineties demand bottomed and then all the seeds that we had sown, whether that's You want to call it the Beef Quality Assurance Program, whether you want to call it, um, the National Beef Quality Audits, whether you want to look at Certified Angus Beef and all the branded programs that started coming out really in earnest, um, in that late 90s, early 2000s period, we finally started to see. The trend turn and from those 1998 lows to the highs we saw in 2022. 2022 was a 30 year high in beef demand. and that's amazing. And the industry absolutely should pat itself on the back. Give credit where credit is due because whether you're Joe cow calf producer, whether you're Jane seed stock producer, whether you're Bob packing plan operator or Fred feedlot owner. Everybody had a hand in it, right down to the retail and food service operator. Don't want to leave them out of this. Economics 101, when you have demand growth like we have seen from that 1998 low to, to the 2022 highs, we basically increased demand on average one and a half percent a year. There were highs and lows, obviously, as we went through the great recession, uh, it, it, it dipped a little bit, but then as we came out of the pandemic, we put those highs in. You've increased demand one and a half percent a year for 30 years on average. You've also seen a decline in per capita supplies. If you think about macroeconomics 101, you move demand curve out and to the right, and then you take the supply curve and you shift it into the left. What happens to price? It goes through the roof. And that's not lost on anybody listening to this podcast right now. And all of a sudden, When you do that, you also increase price volatility. And then you look at the last, let's just say 15 years to make sure we capture a wide enough geography over 15 years, most of the listeners to your podcast can probably say, yeah, I've been to through two or three droughts. Like none of my. Grandfather, father, great grandfather, great great grandfather before him ever went through. And we went through at least two of those in the last 15 years for most cow calf producers. That's a lot of volatility to, to put, a lot of stress to put on a beef industry. Whether you talk about a cow calf producer. A feed yard, a processor, and so because of it, what's happened? Well, we've, we've had two cowherd rebuilds, or I should say, two cow liquidations, one rebuild, and one we hope to have. you've gutted a packing industry from infrastructure through the last cowherd, uh, liquidation. You're trying to rebuild one now. And we all look at the numbers coming down the pipeline and go, how in the world can we be building a packet? You know, all these packing plants when we know there's not a cow base to support it for at least another four years. Um, maybe longer. and then you have all these outside factors at play, Matt. whether it's the age of the producer, whether it is, These, these sustainability commitments that are being thrown out by food companies and how in the world are we as a cattle and beef industry going to navigate, helping these food companies meet these commitments. Are we even on board with some of these commitments as an industry and wrestling with those discussions, all the discussions about markets and efficiency of markets and price discovery, uh, there's all these other outside factors I couldn't even get into in the paper, but they add noise. They add chaos. to the market. And so the call to action in the paper was to just talk through some of these things, the market volatility, the climate volatility, the uncertainty that exists around the beef industry's future, but then also talk about, Hey, We just had a 30 year success story of demand growth. Demand's on solid footing right now, and we're going to continue to chip away and make gains there because we see the fruits of that labor. We're going to continue to improve genetics. We're going to continue to improve nutrition. And as we do that, quality grade's going to benefit. The product the consumer gets is going to continue to get better. Better, more consistent, but maybe we should take some of that effort that we focused on demand building and actually look back at ourselves and say, how do we make sure that we eliminate some of these boom and busts that we don't sit here and we rebuild a cow herd and then all of a sudden. Just get handed a horrible price them for the next five years because we overshot the target or that we all of a sudden Liquidate the cow herd to a level that the packing and cattle feeding base Downstream from it can't exist at the level it did before so their only choice is to Consolidate or get out of business completely. I think some serious reflection on what do we need to do to do? The supply side better is now warranted because the cost of doing business has never been higher. So that's, that's the big picture thesis and of course there's a lot of nuance within the paper.
Track 1:So your subtitle, if I'm interpreting it right, Unprinted subtitle was, how do we keep from going the way of a sheep producer?
lance-zimmerman_2_03-26-2024_111328:Oh yeah, I didn't, I didn't say that, but
Track 1:you think about it, look what happened to the sheep industry. They became this boutique, almost niche market. and you go try to buy lamb, which I don't, but I'm told that if you do, you're going to pay dearly for it. Largely because they completely imploded the sheep industry for various reasons, but drought and being pushed off by other options in terms of grazing lands and things like that, they either were forced out or let themselves Be largely, out of the protein segment. And, and I think in some respects we have to be careful as beef producers that we don't do the same. And it's a, golly, it's a fine line because this may have been before your professional career, but I remember when NCBA had. I can't remember it was blue ribbon, something blue ribbon commission or blue ribbon task force. This was probably around 2000 and probably right at the millennium of, of
lance-zimmerman_2_03-26-2024_111328:Okay.
Track 1:2000 time period in there. And, and it was fascinating. And they had a group of folks, volunteer producer led type folks. I think Donnie Schieffelbein long before he was president of NCBA was in on this, but
lance-zimmerman_2_03-26-2024_111328:Okay.
Track 1:I had a producer and he's a thoughtful producer and a thinker. One of the things that came out of this blue ribbon task force or commission was we have to grow the industry. We can't keep hovering around 29 to 30 million cows, or we're not going to be able to make enough beef for what the the consumers are going to want globally. And I mean this guy absolutely lost it. I want no part of an organization that says they want to increase supply. That's nothing but a packer lackey that's telling me that we need to keep these packing plants running. And like I said, this guy's pretty smart and I respect his reasoning, but he knew supply and demand fundamentals. And he had seen every time we push supply higher that we got lower prices and we lost cow calf producers and we lost feed yards, et cetera, et cetera. So yeah, I mean, it's the, the quest for resiliency would say we need more diversity and we need possibly more supply to keep this industry going. Thank you. But the cow calf producers who are price takers, um, are always quite often the ones that are saying, what are you talking about? Why would we want to increase supply?
lance-zimmerman_2_03-26-2024_111328:no, you're, you hit it, hit the nail on the head. you know, we had record high beef production in 2022, good on us, but per capita supplies were 20 plus pounds off their high. Uh, and so all the production growth that we've had, hasn't kept up with the pace of, production. Population growth and some folks will rightly say, well, but yeah, we're, we're also exporting, let's call it just 12 percent of production today. We weren't doing that two decades ago. Fair, but let's just say, okay, well, instead of exporting it, we'll keep it here and hey, I'll leave, I'll, I'll even add the imports in. Well, guess what? Even if I add imports and exports back in, it's still a decline in per capita supplies
Track 1:just because we've increased
lance-zimmerman_2_03-26-2024_111328:population.
Track 1:the consumers here.
lance-zimmerman_2_03-26-2024_111328:to feed. Yeah. And so,
Track 1:talking domestic, right?
lance-zimmerman_2_03-26-2024_111328:correct. Just, just US.
Track 1:the potential mouths to feed outside of the U S.
lance-zimmerman_2_03-26-2024_111328:Exactly. And I'm, and don't get me wrong. I, I don't want somebody to take a snippet out of this and say, Oh, Lance Zimmerman saying we shouldn't export a pound and, and, and all that. No, there's opportunity there. Um, I'm just for illustration sake saying, even if you assume we kept every pound we produced and still kept every pound we imported, it's still not, it's still a decline. And so, it's, it's, It's challenging, because what I think margin operators in this business have always been after the cow calf producer by and large. Cow calf producers typically don't think in a margin mindset, but I do believe that's slowly changing as cow calf producers, realize they have to treat their operations as a business. And I think we're seeing more, what I would say, professional operators in the cow calf space than we ever have before. Some of that probably naturally happens with consolidation, but let's be honest, we're not, we're not leaning real hard into consolidation in the cow calf segment. 17 census of ag said average size was about 43 head. The latest one said 47 head. So yeah, we're moving that way, but we're not, it's not like we hit a cliff and we're seeing a lot of massive consolidation, but in the paper, I mentioned this. Even Zimmerman Farms in Western Kansas, that my brother runs and manages today, we openly admit that the cow calf operation is a side gig. I won't go as far as to say it's a hobby. It's more than a hobby, but it's a side hustle. The farming operation is the main enterprise, but we still have 150 cows. We're still three times the national average. But you can bet that we, we manage that cow herd a lot more intensively than we did before, because we recognize that every, every bread heifer that we bring in, or every cow that exists with a calf in her belly, she's worth it. Three grand plus going forward here. We want to manage that resource intentionally, because we want to make sure that that she's happy and longevity is there and that we're maximizing our calf revenue on the backside. And so I think we're getting to a point where. When you have these dollar moves that we do, and I mentioned this in the paper, just look at the April live cattle contract that's trading today. We spent 11 months rallying that contract from the day it started in Chicago till September 15th, it hit two bucks and we all patted each other on the back, gave high five, said, Hey, that elusive 2 that we kind of started this discussion with today, it's here.
Track 1:Right. Yeah. Yeah.
lance-zimmerman_2_03-26-2024_111328:and we lost all of that gain from September 15th to the first or second week in December. And only now have we kind of recaptured about two thirds of that decline, but it never got back to two bucks. What, what signals does that send to cow-calf guy? Because that break happened during the fall run. I was telling some other analysts, why does it seem like every single major negative event that's happened in the last five years has been the one that slapped the cow calf guy the hardest, right? And that break, yeah, it hurt everyone, but at least a feed yard operator could sit back and say, well, the fed cattle I planned on selling now aren't worth as much, but at least I have a cheaper buy on the feeder cattle side. The cow calf guy, he gets one chance to sell and that's it for most of them. And that was his shot. And the market was just falling precipitously. take those kinds of things into account. All of a sudden, I think even the cow calf guy, Matt starts looking at things and go, man, this is, this is a different market environment than the one that existed 10, 20, certainly 30 years ago.
Track 1:Yeah, it's, it is a challenge and I've got so many thoughts. I know that there were, pile of folks nodding in agreement, as you said, why is it that these, these tough events always seem to happen at about the time the cow calf guy is, is trying to market calves. But yeah, Building a herd back with some resiliency can take a lot of different meanings. And I love that title because as a genetics guy, I'm saying, yeah, let's build a more resilient cow herd. And one area that we have to build more resiliency into this cow herd is to make sure those cows can be cows and convert forage into a calf. With a reasonable amount of inputs. And sometimes I think, and again, one of these topics that we seem to talk about a lot, sometimes we're breeding these cows to make great feed yard animals, maybe not great replacement heifers,
lance-zimmerman_2_03-26-2024_111328:you're, it sounds like you've heard me talk before, maybe I, I literally have been having that discussion. It's not mentioned in the paper a great deal. I may be alluded to it, picked around the edges, but you know, I, I don't know. I didn't want to bore the readers with every detail, but one of them I mentioned is the idea of, you know, what are, what are we doing at the cow calf level, what are some tools we can use? And again, I focus on, on some different things in the discussions on the side than maybe in the paper. And one of them is this idea that guys will say, well, how much longer are carcass weights going to keep going up? And I'm very candid and say so much so as it depends on a feed yard and a processing plant carcass weights would continue to go up and I said, I can't even as a market analyst ignore the long run growth trend that's existed in carcass weights for decades and to say something contrary than that is a. An outlier thought is somewhat of a radical thought because you have decades of evidence going against you, but I do think to your point, Matt and you have a unique perspective in this being a seed stock provider being the closest to the to the industry as possible. Zimmerman Farms has 150 head, and those 150 head are aligned to a pasture base. There's guys in our area that they've had the same pasture base where ours has been growing a little bit here and there, but they've had the same pasture base for 30 years. They've had 100 head on that operation for 30 years. But that mama cow has a mature cow weight today, let's just call her 1, 600 pounds. 30 years ago, those 100 head didn't average 1, 600 pounds. Let's just say it was, for ease of math, 300 pounds less. They were closer to 1, 300 pounds. Well, for every 100 pounds roughly that you increase mature cow size, the math, and it's old math, but I think it still holds, you increase her maintenance energy requirements 10%. So, rough math, that cow takes 30 percent more resources from a maintenance energy requirement. All right. You're stressing your pasture infrastructure. You're stressing a lot of different infrastructure when you really think about it. And some of you probably hearing that, like me, take pause and go, man, it's kind of surprising that mama cow's as resilient as she is, if she's got 30 percent more energy requirements than her predecessor three decades ago. But In the vein of this discussion of man, how many droughts did we just go through in 30 years? How bad were they? Would I have had to have liquidated nearly as hard if I managed some of this? Knowing what we know about genetics, that a lot of that gain in mature cow size didn't directly translate back to paying me a great deal in weaning weight, it did some, but the real payoff came in the yearling weight side. The feed yard, the packer, probably benefited more from that mature cow size in theory than maybe the cow calf guy
Track 1:without a doubt, there
lance-zimmerman_2_03-26-2024_111328:can we get to with a mature cow? Get her to be a little bit more productive, and I'm not saying mature cow weight's the perfect indicator for cow energy going forward, it's just one of many indicators to look at there. But can we, can we build a more resilient mama cow? And then maybe run more of them, and get to a place where we look at, what's our weaned pounds?
Track 1:you go.
lance-zimmerman_2_03-26-2024_111328:Because we can get to a point where we can run more smaller cows and actually wean more pounds per acre. And then if we have to liquidate some of the cow herd due to drought, it doesn't have to cut as deep because we, we didn't stress that infrastructure out as much going into it and give us some more flexibility as a, cow calf producer. And I think those are some discussions that I believe we're going to get to. And I recognize how politically charged the S word is, sustainability. Man, we're talking about it in that discussion. And if all of a sudden you're talking about pasture health and trying to maintain herd size and trying to maintain revenue, All of those things fall under that big S word, and they're going to resonate with the consumer under the guise of, we're just trying to do the right things for the right reasons. And man, that's a win win.
Track 1:So I said there were a lot of cow calf guys yelling or nodding in agreement, as you were making some of those comments. We have a bunch of feed yard guys that listen to this podcast too, and even a few packers. now they're yelling at you and saying, okay, how in the world am I going to make what I need to make per head in my feed yard or per hook in my packing plant? If you are able to wave the magic wand and make cow size smaller and more resilient and more sustainable. I've told folks. On this podcast, and especially in conversations outside of it, the only way we make carcasses smaller, and maybe mature cow size smaller, is to buy fed cattle in a different way. We, we cannot throw the baby out with the bathwater. Grid marketing, value based marketing has done as much, if not more, for the beef industry in the last 20 or 30 years than anything that I've ever seen. And I'm reading a history book about the cattle kingdom right now. And it's interesting to see what drives value and what drives trends, but the quest to make more premium pounds of. CAB or branded product, whatever you want to call it. Has driven that. There have been unintended consequences, but I don't, I'm not wanting to go back and say, well, if we were just selling them all live, we'd be better off. Absolutely not. But somehow, some way we have to figure out how to be able to serve the consumer, what it is they want, pass those premiums back to everybody who produced it and yet still have a resilient cow herd. And I don't know that just focusing on the. Consumer packer feed yard segment to send those economic signals allows us to do both. Or at least it makes it very, very, very difficult as we try to, those of us that are trying to make a resilient cow and yet still a marketable steer on the other side.
lance-zimmerman_2_03-26-2024_111328:Yeah, no, I think you bring up a really interesting discussion because for all the merits that you and I are cut from the same line of thinking. We, we, we want to produce more prime, more premium choice, more CAB, all, You know, let's have, have it all in abundance. And so how do we do a better job of driving efficiency through the system from a valuation standpoint? Uh, how do, how do we do some of that? There's a lot of hurdles to overcome in that discussion. And you start peeling back one layer of the onion, all of a sudden you're staring at another one with a whole nother set of features. Of choices and discussions to make, but what's really cool, and I allude to it in the paper, maybe not to this specific example, but I say, hey, if we're going to create a more resilient industry, we need technology adoption, we need better coordination among industry segments. Nothing in this paper do I suggest I'm not in favor of independence. I think it's a hallmark of our industry. It's important to our industry. Independent nature of each and every industry segment remains. I don't think there's a way that we can get vertical integration like the pork and poultry industries do. There's just too much money tied up in that. in each individual segment. And I, I think when we've tried in scale, it's never worked out real well. Usually everybody dips their toe in it for a little while and then they pull that toe back out and they say, no, I'm going to stay, stay in the wheelhouse I'm in. But I think we got to do a better job of working hand in hand. And I think that's part of what you're getting to. And it's always been costly. It's always been messy. It's always been hard, but I do think that this next wave of technology that's coming into agriculture is going to make it Easier and more efficient. We have some some value judgments we have to all come to the table with and some personal opinions and feelings that we have to iron out to see if we're willing to to enter down that path. But the technology is there. Blockchain technology, just traceability. But Those are all some pain points that as an industry we've, we've really struggled with. And I'm not saying I have the answers or I even have, have the perfect solution because I, I do think that we all have to air out our, our priors. And I think that was the third solution that I offer in the paper is policy engagement. Whether you look at food companies, a McDonald's, a Walmart, you know, we've mentioned a number of them already today in some respects, the Packers, the Tyson's of the world. if you look outside of food, the Microsofts, you mentioned Zuckerberg, right? Facebook, Elon Musk, all these fortune 500 companies, they've realized long ago that there's a positive return on every dollar they invest in lobbying. I'm not sitting here today and saying everybody on this call needs to break out their checkbook. and write a check to the NCBA PAC or their state association PAC or whatever it is. But what I am saying is you gotta be a part of the process. Even if you don't commit a dollar to it, commit some time to it. I'm not a person that sits back and even with the biggest dissenting opinion, throws, throws stones at them. I'd rather be in the marketplace of ideas. Let's hear the crazy ideas. Let's hear the really mainstream ideas. And then let's let's Let's have a good discussion. Let's not point fingers. Let's not call names. Let's not roll eyes. Let's allow the room to have room for nuance. Instead of it being right and wrong, black and white, let's allow ourselves to do what Washington D. C. doesn't most days and realize that we can find common ground in the middle and come up with a pretty darn good solution. That's how we were able to solve the demand problem, to pretend that there weren't dissenting ideas or, or, or people throwing stones back then at the concept of a branded beef program would be silly. But, They allowed it to live on its own and see if it could survive the marketplace of ideas, and you know what? It ended up being a pretty good idea. Uh, I think there's some room at the table for nuance again, and we gotta find it. And the only way we can find it is just because you hear the radical idea and say, well that's not me, I'm gonna sit at home. That's not the answer. The answer is, that's a radical idea, I can get behind it. Or, that's a radical idea, I can't get behind it. But here's why. And have those discussions, even if it's only at the coffee shop on Sunday after church. we got to be more engaged because what we're going to find out is if we don't, the government's already more involved in our business today than it was yesterday. And you can bet we're all going to wake up tomorrow and they're going to be more involved in our business tomorrow than they are today. We better make sure that so much so that they are involved in us, it's in a way that we're okay with and that we can work around and that we can survive and perhaps, dare I say thrive, even with that involvement. And I think all of those, those issues, vertical coordination, technology adoption, policy engagement, there's a lot of intertwinedness there, um, that we, we have to be thinking through where do we fit within all those discussions.
Track 1:And those discussions are, are tough. you, you mentioned. pain points and I think you hit traceability and government policy and you name it, uh, those pain points are where cattlemen quite often get red faced and walk out the door. And, and I've seen several of those meetings, quite frankly, the exact things that you said, value based marketing, branded beef, some of those drove some of those discussions. And, and today you can say what you said, who would throw a rock at those ideas. There were tons of rocks being thrown at those
lance-zimmerman_2_03-26-2024_111328:Mm hmm.
Track 1:with so much force that especially those that had any type of Packer processor involvement, vertical coordination, those folks throwing the rocks left the room. And got, have gotten rocks thrown at them ever since. I, I don't like that. I don't like A, that, that they left the room. I I like even less the fact that they felt like they were pushed out of the room, which some do. And in some respects, rightly so. What I hate the worst is that they haven't been back. And, and that's the part that scares me the most. When people say, what keeps you awake at night? You know, we can talk weather, we can talk markets, we can talk government involvement and, and the globalization of the beef industry and all these different things. What keeps me awake at night is the fact that my neighbors and I can't sit down and have a discussion without one lightning rod issue coming up and it absolutely stopping the discussion in its tracks. And. We could have a whole nother podcast on government involvement and policy involvement, and you're right. We have to be involved and we have to be in those discussions as an industry. And we have to be in them with the level of professionalism that it takes to actually get somewhere, not just March on DC and slam our fist down on the table and tell them they're a bunch of criminals. I though, struggle with how much government involvement into the beef industry we really want. there are those who think that we have to be at the table because whether it be crop insurance or,, safety nets or whatever the case may be, our acres are competing with corn and beans and cotton and everything else. And so maybe we have to be, but Man, oh man, I look at the amount of government payments that have come into the beef industry over the last couple of droughts and I grit my teeth because I, I don't know, maybe it is healthy. It has injected a lot of cash into cow calf producers and landowners pockets. But, that one, again, we may have to have you back on for another discussion because I could go for another 55 minutes I'd say on that one.
lance-zimmerman_2_03-26-2024_111328:But you, you mentioned that, and not, not just drought payments. I mean, I do mention this in the paper. Look at, look at how many millions of dollars the government's thrown at rebuilding processing capacity. Right. Uh, the, the look at LRP, Livestock Risk Protection. Um, it, it got, it got drugged through the mud during the fall break. And some of the data just doesn't line up with some of the, the fear mongering and the, the, the rumors thrown out. Were there cases of things going on with LRP where it needs fine tuned, it needs improved, it needs cleaned up? I think. I think yes. Did it go as far as maybe all the, the posturing during the fall run, uh, on prices as they were breaking down around us? I don't believe so. But the numbers tell us LRP is a very popular program. Uh, you just look at the numbers. We pull them here at Rabo today. I checked these numbers in January. And you can look at LRP participation, by feeder cattle contract and by fed cattle contract. And when I was looking through it in January, we already had half as many feeder cattle as 2023, and we had just as many fed cattle enrolled. Already as we started 2024, the program is wildly popular. And so if if you believe it had some problems that caused some of the market volatility in 2023, then you better be having those discussions with the folks at USDA, with your elected official and, and request that they do some investigating into it. Because if you don't have that dialogue, you're at risk of having problems down the road. If you believe those were problems in 2023, they're only going to rear their head more going forward with more volume, not less. So let's make sure we like the tools that the government's giving us and that we provide candid feedback on what works and what doesn't. Because what the government has shown, and we can look at some examples in ag, they have a really good propensity of willing something into existence, and then it stays, right?
Track 1:that's where I think we have to be careful what we wish for as beef producers, as especially as we work with the federal government, because yeah, unintended consequences are usually what come up. And we realize after the fact and, and, um, you mentioned a couple of times the word nuance. Nuanced is not something that I would describe many cattlemen's discussions. it's just not there. We like simple solutions. We like straightforward solutions. We like black and white, Gray area is not tolerated quite often in our, in our decision making. So nuance in our conversations is, uh, Lacking quite often and yet today with the market with the consumer with government intervention with discussions about sustainability and vertical coordination and actually having to deal with issues that are outside of our segment, but yet affect us greatly in the near and long term. Nuance is exactly what we have to have. That's why I started this stupid thing called a podcast, was because I was sick and tired of discussions that were one sided, and the loudest commenter or the loudest. Squeakiest wheel got the grease. We have to have these nuanced discussions. And I think that you've given us through this paper and through a lot of the work you're doing with Rabo have given us an opportunity to have these. And I just commend you for it. And, uh, I may not agree with everything that, that, that you've said. An economist writes or, suggests, but I think you've done a great job of laying out some discussion points for us to go forth.
lance-zimmerman_2_03-26-2024_111328:appreciate that. and I agree. I, uh, you know, my role is a little bit different here than it was at Cattlefax, where I was, uh, I was a true market analyst, you know, trying to help folks make risk management business decisions every day. In this role, I get to still do some of that, but, but I also get to balance it with just being a sounding board for some of these discussions. And it's funny, I, I used to go out in the countryside and, and get the chance to talk to consumers when I work for Certified Angus Beef and then Cattlefax and, you know, a consumer would ask me about what, What's what's a cattle producer like? And I realized I went through an epiphany last year, Matt. I used to always say, well, you know, John Wayne. And as time has gone on, I've started getting a lot more blank stares because the only thing they know about John Wayne is a black and white photo that they've seen. And it finally hit me. You know who John Dutton
Track 1:There you go. There you
lance-zimmerman_2_03-26-2024_111328:Now all of a sudden, and we can, we can cuss and discuss that a lot, right? I mean, yeah, maybe, maybe it's not quite the, the sex and rock and roll and, and, you know, explosions and gunfire, but there's a quote I found cause I started needing to hunt for a quote that encapsulated the John Dutton spirit of, of the cow calf producer, feed yard operator, whatever. And, uh, the quote, and I pulled it up on screen here, this is going to be the end of us. But we're going to do it anyway. That fierce, you know, Hey, we're going to give this a try. We don't know if it's going to work or not. It may well be our undoing, but we think it's the right thing to do. And, uh, and so, yeah, maybe that's the, the right way to, to exit stage here. But I, I think, uh, trying to communicate. The spirit that exists among the industry is, is always important and man, I, I love it. There's not a group I'd rather work for than, than America's cattle producers. And of course, I cover all in North America. I spent the last two travels in, in Canada. there's a lot more similarities among all of us than there are differences when you travel internationally, when you travel the U. S. We have some problems, but man, our problems sometimes are quite a bit more minor than what a lot of other cattle producers and beef producers face in other countries. And, and for that, I feel like we're blessed. And so sometimes just to find nuance, sometimes you just got to look at the blessings and not the problem. And sometimes that's real important in these things too.
Track 1:Yep, I would agree completely. you summarized it very, very well as you get paid to do. So, uh, we appreciate that a bunch and, uh, keep up the great work. And like I said, we may have opened up just enough cans of worms that, uh, may have to have you come back and, and dig through another one someday. So thanks again for being with us and we'll talk to you soon.
lance-zimmerman_2_03-26-2024_111328:Sounds great. Thanks, Matt.
Microphone (Yeti Stereo Microphone)-2:Thanks again for listening to practically ranching brought to you by Dale banks, Angus. In addition to the great group of yearling bulls we currently have for sale. We just listed a super set of foundation females to our private treaty offering. We have 25 head of registered bred heifers. That'll calve this fall. They're sired by growth fund. Cool, safe and sound and top cut. And they're bred to Canadian commerce Yon, top cut, and the patriarchs. And we raised. Best of all, they stem from our foundation cow families developed for over a century here in the Flint Hills of Kansas. For information about either these heifers or the spring yearling bulls. Email Matt Perrier at Dale banks. Dot com or text me at 6 2 0 5 8 3 43 0 5. Thanks again for listening. God bless. And we'll be back again in two weeks.