Industry Analyst Says Cattle
Price Cycle Is Alive And Well

WICHITA, Kan. — The cattle cycle is alive and well, says a 32-year veteran of such things.

"I think that there are periods of time when we look at this thing and say, 'Well, I'm not sure we're in a cycle; I'm not sure we're going to have another cycle.' The bottom line is that as long as we have as many individual producers, making independent decisions that are aimed at improving their particular financial situation, you're going to have cattle cycles," says Topper Thorpe, chief executive officer of Cattle-Fax. "It's just the nature of the beast."

Over the past decades, as cattle numbers have wavered and prices have bounced around, some observers began to have doubts that the cattle cycle remained.

"There's no question that there is a cycle," Thorpe says. "The cycle continues."

He says the cyclical pattern of cattle prices from the 1930s to the 1970s was constant.

"Even during the drouths of the '30s and '50s, we continued to have the cycle," he says. "The peak in those cattle numbers occurred in year five of each decade."

Thorpe says the industry talks about the cycle being elongated or shortened or modified, but history says that really hasn't happened.

"The last peak numbers we had were 1996, so we're off a year from the year five in these decades," he says. "Maybe there'll be a little bit of a shift here, but I don't think there's going to be a significant shift."

Today, he says, cow-calf operators for the most part are in good shape financially.

"They have today the economic incentive to expand," Thorpe says, "but you don't expand or even restock unless you've got green grass."

Drouth conditions have delayed that expansion, he says, but there has been a dramatic turnaround in moisture conditions across the country in the past two to three months.

"Yet, some of these areas have been drouthy now for four to six years," he says. "You just don't turn that around instantly."

Thorpe says that given the moisture conditions that have not been there before, he is expecting to see heifers pulled out of the feeder cattle supply and starting to go back into the cow herd, either for restocking or for expanding.

"Once that economic incentive is there, that's what you expect to happen," he says.

But it hasn't happened yet.

"We still have a large percentage of the heifers going into the feeder cattle stream, going into the feedlots," Thorpe says. "You'd think, with the moisture conditions that we have had recently, that's probably going to start to change."

That will depend, he warns, on producers' confidence that the moisture pattern will continue and the economic incentive will remain.

Everybody, generally speaking, is in the cattle business to make money, so when the economic incentives are there, they tend to respond.

"Of course, it all starts with the cow-calf producer," Thorpe says.

The next several years, he adds, will be much tougher on the margin operator.

"That means basically everybody other than the cow-calf producer," he says. "We've got excess capacity in cattle feeding areas. We've got excess capacity in packing. The supply of feeder cattle is going to shrink continually over the next several years."

That means feedlots or stocker operators, those people buying calves, will be competing more and more for a smaller supply.

"You basically bid the margin out of them," Thorpe says.

He thinks the competition will really intensify in the feeding and packing sector over the next several years.

"That's just the way it is in this stage of the cycle," Thorpe says. "There's no rocket science there. It's pretty basic."

Of course, the cycle is driven by demand, and demand is rising.

"When we look at the amount of beef that we're producing," Thorpe says, "we're producing more beef and we're selling it at a higher average price per pound."

That says demand has improved.

"The question then becomes, 'why has demand improved?'"

The answer is not clear.

"I'd say to you that none of us know why demand has improved," Thorpe admits.

The strong national economy is no doubt a positive part of the equation.

"You've seen that diet health issues haven't gone away," he notes, "but they're not nearly as prominent."

Beef is more accepted today by health-conscious consumers.

A sign of this is the proliferation of steak houses and high-protein diets.

"You've seen a lot of efforts on the part of the industry itself," he says, "to do a better job of meeting consumer demands through branding products, through further processing, whether it's pre-cooked or whatever. I think we'll see more of that as time progresses."

Thorpe hopes the industry will be able to build on the improved demand.

"I think the real test is going to come when we have a setback in the economy," he says. "We will have that at some point down the road here."

Then there will be evidence of what role the economy is playing in beef demand, if any.

"Maybe none of it is the result of the economy," he says, "but you just have to think it probably is."

By that time, however, Thorpe says the beef industry should be offering an even higher percentage of convenience beef items to the consumer.

"That's certainly the direction we're headed," he says.

And that may well offset any decline in the economy.

"The bottom line to the demand thing, as I see it, is that as an industry we have finally accepted the fact that the consumer is boss," Thorpe says. "The consumer pays all the bills, and we better do all that we can to satisfy the consumer."

He says the industry is taking positive steps in that direction.

"We don't understand all about demand," Thorpe shrugs, "and I don't want you to think we do, but those are certainly the factors that we look at."