Mastering Cattle Market Trends: Maximizing Profitability with Lee Schulz

Have you felt giddy about cattle prices? It feels good to see high prices and get paid more for the work you put into your cattle. However, we know that markets run in cycles and need to keep in mind that none of these prices are permanent. Lee Schulz shared tips for how beef cattle producers can understand cattle cycles and how to make decisions accordingly during this podcast interview. Schulz has a three-way split between teaching, extension and research at Iowa State University.  

Understanding Cattle Cycles

Cattle markets occur in cycles and no two cycles are the same according to Schulz. The basics of cattle cycles and economics are that when supply is low, prices are high and when supply is high, prices are low. Cattle cycles are typically between nine and fourteen years long and over time cattle cycles have been flattening as more beef is being produced from a single animal compared to earlier years. When producers are seeking to understand cattle cycles, they need to remember the nature of the beef industry too. “At the heart of it I think we need to remember that like any other business, cattle production is a competitive industry. That means that long run economic profits gravitate towards zero” said Schulz.

The Current Cattle Cycle

The current cattle inventory cycle began in 2014 after drought in 2011 and 2012. Inventory peaked in 2019. Prices have been high over the past few months, and producers are certainly appreciating this. However, input costs and interest rates have also been higher which may skew outside perceptions of profitability. “Producers respond to profits and not prices. An outsider looking in might say that with high prices we will be moving towards expansion, however input costs have been high enough to keep profits at a modest level depending on the region” said Schulz. Schulz encourages cattle producers to enjoy this time in the cattle markets but be diligent about their decision making moving forward.

How Should Cattle Producers Respond

There are a few things to keep in mind as cattle producers watch the markets and manage for profitability. First, cattlemen and women need to keep in mind what their long-term plan is and ensure their investments are in line with that plan. Know what the expected return on investment is for each input as well. Managing and paying off debt is also important to consider when managing for profit and preparing for a turn in the cycle.

Price risk management is the thing beef cattle producers should keep top of mind as they make decisions based on the current markets. Price risk management can be hedging with futures, buying options on futures, or purchasing price or margin insurance, just keep in mind that price risk management is about mitigating losses and not necessarily getting the highest price possible. “Be comfortable with the tools that you are using and understand what worked last year may not work this year. What works for your neighbor, might not work for you. If you aren’t knowledgeable about these topics, work with someone who is” said Schulz. Cattle producers need to be aware of the best- and worst-case scenarios for their decisions and realize that reality will most likely be somewhere in between. Just be sure you can take on the risk and have a plan if the worst-case scenario does occur.

Be sure to know what your goals are, what risks you carry and your break-evens as you move forward. “We talk a lot about making good decisions in the bad times, but we need to dial in on our decision making during the good times too. The decisions we make this year will set us up for success or failure for the next downturn in cattle prices” said Schulz.

Wanting to dive deeper into understanding the cattle market? Here are a few articles shared by Schulz.

Beef cow herd to shrink for years to come https://www.farmprogress.com/livestock/beef-cow-herd-to-shrink-for-years-to-come

Profits, not prices, drive replacement values https://www.farmprogress.com/marketing/profits-not-prices-drive-replacement-values

Explaining beef’s supply curve https://www.farmprogress.com/livestock/explaining-beef-s-supply-curve

Raising Versus Buying Heifers for Beef Cow Replacement https://www.extension.iastate.edu/agdm/livestock/html/b1-73.html

Net Present Value of Beef Replacement Females https://www.extension.iastate.edu/agdm/livestock/html/b1-74.html