CattleFax's Lance Zimmerman Finds Herd Expansion Creates Tougher Climb For Cattle Markets

Cattle producers have experienced a challenging year for 2015, especially with the cattle market collapse of late August, September into early October. Speaking at the Angus Means Business Convention in Overland Park, Kansas, CattleFax Market Analyst Lance Zimmerman said the collapse wasn’t completely unexpected. CattleFax predicted 2015 could be a year of volatility. In going into the year, he said they tried to warn cattlemen that this market was near the top end of a historical trading range.

 

 

In 2014, consumers had to get used to consuming less than 200 pounds of protein.   Zimmerman said that took place for the first time since 1991.   He said it wasn’t due to demand, but rather supply. The beef industry had gone through a decade of contraction. The pork industry was battling with the porcine epidemic diarrhea virus (PEDV) and the broiler industry was struggling with fertility issues.

 

“Production was so constrained in 2014, you finally started to see some of those competing protein prices break at the end of last year,” Zimmerman said. “But beef road the wave a little bit longer than the rest and we put in those highs in the first quarter. Then we carved out the lows here at the start of the fourth quarter. So, yeah, it’s been a wild ride, but just due to dynamics we were facing it was due to happen at some point.”

 

Heavy carcasses have weighed down the cattle market this year. Zimmerman said those heavy carcass are a symptom of a bigger problem. With a decade long drought, he said the industry would gently and gradually tilt leverage back to the sector that holds onto supply. Ultimately, it’s the cow-calf producer, but it’s also the stocker and feedlot operator. This summer feedlots were offered incentives to feed cattle longer. At the same time, the beef industry closed a packing plant in Denison, Iowa. Zimmerman said this tilted leverage back to the packer.

 

“You have a retailer that’s making money today on the beef they are selling, a packer that’s making a little bit of money on the beef they’re selling at a time of year where they typically lose money,” Zimmerman said. “It’s just a symbol of the leverage is starting to tilt it’s hand up the chain a little bit more and the guy that’s holding onto the supply is losing just a little bit of it. It’s going to be a little bit tougher climb for us now this cattle cycle’s growing.”