Beef Market Update with Paul Dykstra

Delivering a quality product is something Angus producers are familiar with, but what opportunities and challenges are available as we move forward in the current cattle cycle? 
 
Today’s host, Miranda Reiman, sat down with Certified Angus Beef’s Paul Dykstra to discuss: 

• Current market trends
• What producers might expect in the coming year
• Dykstra's recent Angus University market presentation
• And more!

We thank Westway Feed for their support of this episode.

Find more information to make Angus work for you in the Angus Beef Bulletin and ABB EXTRA. Make sure you're subscribed! Sign up here to the print Angus Beef Bulletin and the digital Angus Beef Bulletin EXTRA. Have questions or comments? We'd love to hear from you! Contact our team at abbeditorial@angus.org.

Transcript

General: 
Angus at Work, a podcast for the profit-minded cattleman, brought to you by the Angus Beef Bulletin. We have news and information on health, nutrition, marketing, genetics, and management. So, let's get to work, shall we?

Lynsey McAnally: 
Hello and welcome back to Angus At Work. Delivering a quality product is something Angus producers are familiar with, but what opportunities and challenges are available as we move forward in the current cattle cycle? Today's host, Miranda Reiman, sat down with CAB's Paul Dykstra to discuss current market trends, what producers might expect in the coming year, and his recent Angus University presentation. So, let's dive in.

***
Today's episode of Angus at Work is brought to you by Westway Feed Products. Westway Feed Products liquid feed supplements increase forage utilization, delivering consistent nutrition to your herd, creating efficiency and sustainability for your beef operation. To learn more or to locate a dealer near you, call 800-800-7517, or go to westwayfeed.com.
***

Miranda Reiman:
Welcome to Angus at Work. I'm your host, Miranda Reiman, with my special guest, Paul Dykstra with Certified Angus Beef. How are you doing today, Paul?

Paul Dykstra:
I'm doing quite well. Thanks, Miranda.

Miranda Reiman:
First, just tell our guests a little bit about who we're speaking with. What do you do there on the CAB team and what's your specialty?

Paul Dykstra:
Well, my specialty is everything supply-related for Certified Angus Beef. My title is Director of Supply Management and Analysis. That's kind of a mouthful, but really, my responsibilities primarily revolve around the supply side of the business, and that is to keep producers informed and motivated to produce more cattle that will meet our specifications for the brand, because we always need more supply, it seems, and that's especially relevant right now. But at the same time, I also do some market analysis and reporting for our staff internally with regard to what cattle prices are doing and product values are doing as well on the box beef side of the business. And I write a bi-weekly newsletter, the CAB Insider. So that's kind of in a nutshell what I do.

Miranda Reiman:
It's been a more fun story to tell, probably, the last year than it had been some previous years.

Paul Dykstra:
Yes. Prices have been much more positive, and I think we're all pretty excited about what the proposition that cow-calf producers in particular are looking at and have recently enjoyed, giving some folks a little bit more profit margin and some breathing room. So yeah, it's an interesting and exciting time in the business.

Miranda Reiman:
Right. Well, let's maybe start with that market recap, the February Angus Beef Bulletin will have a column that you wrote about that, but kind give us the highlights on what was 2023 in the cattle markets.

Paul Dykstra:
2023 will... Of course, that story will essentially feature a leverage shift in the cattle side of the business, and that leverage shift being, of course, transferring most of it from the packer to the feed yard. And of course that ever-important fed cattle price has adjusted much higher. Now, that has also brought about a little bit of an adjustment here. If we're talking about the recent past, in the last quarter of the year, obviously, the market adjusted much, much lower on some impacts that really are not fundamental in nature. And let's just call it a spade a spade and say it was the cattle futures, and some of the activity on the board that pushed prices much, much lower.
Some of that adjustment was probably warranted in the fact that we had gotten cattle pretty high, and packers were in the red for a pretty decent amount of time. And while that's not altogether a horrible story, it's not very sustainable either. So we did push some of those fed cattle prices back down. But the 2023 summary is that yeah, price is much more favorable to all sectors on the production side. And the challenge of course is that, obviously, feed yards are going to be paying for some pretty high-priced calves as we move forward. So there's always that piece, each sector trying to keep their head above water.

Miranda Reiman:
Absolutely. And at the same time, the record-high prices, but there's also some inputs to figure into that. And it's not all rolling in the dough.

Paul Dykstra:
No, no. Inputs are particularly high in the areas of machinery and labor. I'm pretty sure land prices haven't backed off too much. The nice piece of the story though on the inputs is of course the price of corn has been much more favorable in the last number of months and appears to be in very workable territory as we move forward this year. Price of hay, also more favorable in supplies of hay, much more accessible. So that piece of it's good. But no, I mean overall we are all facing an inflationary situation regardless if we're in production ag or somewhere else. But there's some room here to make some money on it, particularly in the cow-calf sector, and hopefully give some folks a chance to service some debt and maybe even make some improvements around their operation.

Miranda Reiman:
Sure. I think that we've all held our breath just a little bit as cattle prices got to record highs in 2023, thinking through what's that going to do on the demand side of the equation. So what's that story been?

Paul Dykstra:
Well, that story hasn't played out quite yet, but early indications are that this price level of beef at the retail meat case, and when I say this price, I mean the $3-plus comprehensive, excuse me, composite cutout value is probably enough from that consumer's perspective. I think we've seen in the short-term data that beef demand has seen a bit of slippage, if I'm quoting that K-State data correctly. But I think it's natural, if we think about that, because the price spread between beef and pork and poultry has widened, and it's been on an ever-widening pattern for a number of years, but it's exacerbated now. And so demand is exceptional, but in the face of this higher price level and the concerns that consumers have surrounding that unfortunate inflation word, I think just stands to reason we have a little bit of a headwind there.

Miranda Reiman:
I think when we talk on the demand side of the equation, another thing that often comes up with high beef prices is what does that do specifically to quality demand or those products that are even more expensive or pay a premium? So what have consumers been telling you with their pocketbooks?

Paul Dykstra:
The story behind that is pretty strong for quality, Miranda, and I suppose you'd say no surprise coming from you, Paul, but it's been pretty good. And I logic my way through that conversation in the way that if a steak is going to cost what a steak costs today, the customer's probably willing to pay a little bit more to make sure it's the best one that they could possibly get. They want a premium experience when they're handing over their hard-earned dollars for a premium beef-eating experience. So what we've seen though, in terms of just demand for Certified Angus Beef, Certified Angus Beef Prime. You could even throw in USDA Prime there as well. Demand for those is very, very good. Now, supply isn't always that good, and that's kind of created a little bit of the rub in the issue. And from our customers, we are hearing I just need to get product around. And it's not always necessarily a price conversation, it's just a matter of supply and availability. So I sure do feel very like we're in a positive spot with regard to demand for our highest-quality levels of product

Miranda Reiman:
And looking forward. It's when we see the cowherd contraction in that, it's really the supply side of the equation that you guys are probably most concerned about there in the CAB offices.

Paul Dykstra:
Yeah. As positive as we are about price due to low supply, the other side of the coin is our customers having product 52 weeks out the year, and I think it's a real concern. And what, to me, is the underlying issue is we have two more years of this supply scenario ahead of us, with smaller numbers in the next coming two years yet. Some of that's because we'll be retaining some heifers, hopefully. That's part of our industry plan, I believe. But as that happens, even tighter supplies may drive a few of our end users away from beef or seeking out some alternatives simply because they can't get enough of it when they need it, not because they don't necessarily want it. So as positive as that is for cattle prices, it does have a two-sided effect in that regard, possibly.

Miranda Reiman:
Talk about what the incentive is for a producer to hit that target to be a supplier to the Certified Angus Beef brand and Prime both.

Paul Dykstra:
Yeah. Well, the incentive is dollars and cents, and that's the kind that we can always respond to and it's very, very clear. And it's been a fun... let's call it a 15-year period that I think that that message has really gained strength here where premiums have grown alongside supply, where we have just completed our eighth straight year of selling more than a billion pounds of Certified Angus Beef brand product. So we are in the largest supply, historically, of our brand, and that's been cattlemen responding to those signals by breeding better cattle with higher marbling potential, et cetera, and managing cattle to our carcass endpoint as well.
But my point is the largest supplies ever, or thereabouts, and also the widening of these premium spreads has also continued to grow as supplies have grown. So we just talked about small supplies of beef, but that's beef in total, and we're talking about total head counts offered to the market. But I'm talking about the proportion of cattle meeting our specs has continued to grow as Angus seed stock producers have built better genetics and improved on these cattle. And the commercial folks, of course, have utilized those to a high degree. Our proportion of high quality product is larger than ever, and these spreads are wider than ever as well. So that's pretty, I think, easy to understand that equation.

Miranda Reiman:
Opposite what you might think in basic economic terms.

Paul Dykstra:
For sure. Yep. And I think some of us, and myself included, I'm guilty of at one point in time, would've said there's possibility we might saturate this market in terms of supply of Certified Angus Beef. Maybe the proportion of high-quality beef might become too much that we can't get a premium for it anymore, and that's not been the case at all. As I said, these spreads have widened in recent years to a degree that I think is quite impressive.

Miranda Reiman:
So if you're a cattleman who's trying to... You've made an investment perhaps in Angus genetics and you're trying to aim your herd towards the certified Angus Beef brand towards Prime. What are some things you ought to keep in mind or what's your... You got a five-step plan or anything?

Paul Dykstra:
We could make it as complicated as we want to, and I can really get myself in trouble with doing that, Miranda. But there's one thing that's very simple to do in that pursuit, and that would be to choose a baseline marbling EPD number that you believe is one that's going to help you improve the quality-grade potential of your calf crop. And I won't prescribe that number for anyone specifically. Now, we do, at Certified Angus Beef, we do offer that targeting the brand logo for seed stock folks to associate with their bulls that meet a set of standards. And those standards would be a plus 0.65 marbling EPD, and a plus $55 grid index value. So those are numbers that we have set forward. I'm not saying they're right for everyone. You can become more advanced in your selection pressure or you can back it off. I'd recommend probably wouldn't back it off too much from those though, if your goal truly is to improve what I'd call an average set of commercial cows out in the country. That would be a place to start.
But if nothing else, select a number, select a baseline, and pay attention to what some of these carcass trait numbers are. Not only marbling, but ribeye size and carcass weight and back fat thickness, but have a threshold of acceptability that you choose while you're also, of course, selecting for a balance of traits that are going to improve your calf-crop progeny in the future of your cow herd.

Miranda Reiman:
Just know what direction you're going, basically.

Paul Dykstra:
Have a purpose, yes.

Miranda Reiman:
Paul, you were down at Cattlemen's Congress in Oklahoma City and part of a panel where they talked about balancing the consumer and balancing the cow herd. What were some of the main takeaways from that?

Paul Dykstra:
Really two things. First of all, it was not recommended that anyone overlook their necessary traits to maintain the soundness and the workability of the cow herd at home. So job number one is make sure the cow herd is in good shape, and particularly when we're talking about retaining replacement heifers from your own mating decisions. So that's first. Let's not gloss over that. But second of all, that we can simultaneously select for carcass traits to make improvements and better suit our calf-crop for that feed yard and packer, and the needs that they have. So there are a number of EPDs, of course, that cattlemen can look toward and need to pay attention to and need to balance those out. But I think, again, probably selecting some baselines for carcass traits would be wise.
If you're keeping females, don't sacrifice the maternal side, but just keep an eyeball and some pressure on some of these traits that help with product quality and feed yard performance as well. And that includes the growth traits too. So lots of things to keep in line, but cattlemen just using the tools available to them, I think they've got a very good chance of finding some balance there.

Miranda Reiman:
And it's probably noted that it's not going to happen automatically. It will take a little bit of work.

Paul Dykstra:
Undoubtedly. The nice thing about it, if, again, if we're speaking about the terminal traits now, Miranda, terminal traits are highly heritable, particularly marbling, which is the one that I focus on quite a little because it has the most bang for the buck. If we have high-marbling cattle, they can return us a lot more money than average or low-marbling type cattle. So we've seen it demonstrated many times, and the Heritability works, where if we have a few generations stacked for marbling in particular, then those offspring will be exceptionally high-grading cattle in many cases. We can make rapid change in a couple generations. So again, not to get anything into that single trait focus, but applying a good amount of pressure can make that change happen rapidly.

Miranda Reiman:
So we've covered the market of incentives, we've covered how to get there. Is there anything that I've missed that you wanted to add in?

Paul Dykstra:
Well, we always have to talk about marketing a little bit, don't we, Miranda? That's one of the things that we can always make a decent difference with if we try harder, and that's marketing. And not to accuse anyone of doing it wrong, but there are several examples I think we could each of us think about where could have done it better. And I think if we're going to spend this much energy creating a high-value calf crop, and we're going to spend generations of maybe our family's time and certainly generations of our cow herd to make those cattle better, then we ought to spend some time trying to get them marketed to the highest return. And to my mind, there's still no better way than the networking way, regardless of the venue of where those cattle might sell. If it's in the country, the auction barn, the video, I don't care which. Having a network of potential buyers is always time well spent. And it's probably a pretty corny joke, but we always talk about a lot of ranchers, their vacation has something to do with cows, and there's another opportunity to go on a vacation, stop in at a feed yard and make a new friend and see what those relationships might bear fruit down the road.

Miranda Reiman:
Well, we always like to end this podcast on some good news. There's enough bad news out in the world. So whether it's personal or professional, give me some good news, Paul.

Paul Dykstra:
Well, I'll give you some personal good news, Miranda. My kids are both off to college this year, so my wife and I have been learning to be empty nesters. I think we're getting a little bit better at it. And the final icing on that cake is they haven't come home yet, so everything's looking pretty good.

Miranda Reiman:
Hopefully Rhett and Rio are going to listen to this one and hear that good news.

Paul Dykstra:
Stay in school, kids.

Miranda Reiman:
So if you want more information like you heard today, you can subscribe to Paul's CAB Insider. Visit cabcattle.com. And if you want more information on that panel that Paul was a part of, you can actually watch it by heading to Angus.org. You'll be able to read Paul's article in the February Angus Beef Bulletin. Pick up your copy of that today. Thanks for joining us.

Paul Dykstra:
Thanks, Miranda.

General:
Listeners, for more information on making Angus work for you, check out the Angus Beef Bulletin and the Angus Beef Bulletin Extra. You can subscribe to both publications in the show notes. If you have questions or comments, let us know at abbeditorial@angus.org. And we would appreciate it if you would leave us a review on Apple Podcasts and share this episode with any other profit-minded cattlemen. Thanks for listening. This has been Angus at Work.