KFB Candid Conversation with University of Kentucky Associate Extension Professor Kenny BurdinePosted on May 6, 2020
KFB Candid Conversation presents a discussion about the topical issues facing the agricultural industry and rural communities in a question and answer format. In this column, Kenny Burdine, an Associate Extension Professor in livestock economics at the University of Kentucky College of Agriculture, Food, and Environment discusses the state’s cattle industry the current state of the industry, and his role on a national team which came together to discuss the impact of COVID-19 on the sector.
How did this national team come together and what was its purpose?
Colin Woodall at the National Cattleman's Beef Association reached out to Oklahoma State University’s Darrell Peel, who is an extension economist at OSU, in an effort to put together a team that could try and estimate the losses to the cattle sector, because of COVID-19. In doing so, a group of people with diverse backgrounds from all over the U.S. came together to speak to all aspects of the industry. In putting together the nine-member team, there was a real effort to get people who understood all aspects of the cattle business. NCBA wanted some estimates to use as the industry interacted with USDA, with respect to the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
The numbers the team came up with look very daunting, to say the least. The total impact to the industry could be as much as $13.6 billion with a per head total of at least $111.91. How did the team come up with those totals?
We estimated losses in total by using changes in price forecasts and changes in futures prices, before and after COVID-19. We needed estimates of cattle inventories at all levels of the system to do this, and then were able to express those estimated losses on a “per head” basis. So, at the cow-calf level, we tried to do it based on mature breeding animals; cows and bulls. And then, of course, for stocker/backgrounding and for feedlots, we did it based on the number of cattle that were in a stocker or backgrounding program, or on feed, when this happened.
Did any of these estimates surprise you in any way?
We had a relatively small amount of time to make estimates that were based on expectations in the future. So, we had to make our estimates based on the best information available. In terms of the per head losses, I really wasn't all that surprised. When I step back and look at them, they make sense. But that total number will really grab your attention.
Where did we stand with the cow herd before COVID-19 happened?
The beef cow herd hit a low in terms of numbers in 2014. And of course, we also had really high prices. Starting then, we grew the cowherd for 5 straight years. On January 1, 2020 however, we actually saw the beef cow herd smaller than a year ago. So, from January 1/19-January 1/20, there was an estimated one percent decrease in beef numbers, nationwide. We had begun the process of reducing the size of the cow herd, which, frankly, is exactly what the market needed. That should have started the process of seeing prices improve. But we have to remember that the 2020 beef production level is really a function of the 2019 calf crop. In reality, beef production was actually going to be higher this year. It really wouldn't be until next year when we saw the smaller calf crop lead to lower beef production. So, there's always a lag in terms of cow numbers and beef production. The economic hit from the virus actually came when production was pretty high across all meats; beef, pork and chicken, which, I think, compounded the price problem quite a bit.
With all the discussion around fears of meat shortages due to processing facility closings, do cattle producers, especially cow/calf operators have more flexibility than other types of livestock producers?
The answer is yes, they have some flexibility. For example, if I have a fall calving operation, I might be weaning calves in April and I do have the option of weaning those calves and growing them for a period of time or keeping them on the cow a bit longer. Still not all producers will have the ability to do that. And, the further downstream I get, the less flexibility I have. If I'm a stocker operator or a backgrounder, and I've got heavy feeder steers ready to sell now, I don't have as much flexibility. And certainly, if I operate a feed lot, then I've even got even less flexibility. Those cattle that are ready to go, I can only drag them out so long. And if I do delay marketing cattle, I may actually make the situation worse, by letting cattle back up in the system.
To say we have an unsteady market at this point is likely a big understatement. What are your thoughts on the current beef cattle market?
We were largely on pace to see big beef production numbers during the first half of 2020. But now the markets are largely focused on the potential impact from processing plants that have temporarily shut down or are operating at a lower capacity. So, we're in a strange place right now. We’ve got what seems to be pretty strong demand at the retail level from consumers who were kind of “buying ahead”, but on the negative side, we've lost a large chunk of our food service market and shifted that towards at-home consumption. That creates some challenges for the system. And, all the uncertainty in the market is creating a lot of price volatility.
We are hearing a lot about the losses incurred from the food service market. Is that market much larger than many of us thought?
It's a very significant market, probably more so for the beef sector than for other commodities. The food service market also tends to be a market for higher-end cuts, whereas at-home consumption tends to be more lower value beef cuts. With that being the case, I think we're also learning that it's difficult for our supply chain to just automatically divert processing that was geared towards food service and automatically shift it towards retail. There's a difference in packaging, a difference in quantity, and a difference in the types of meat products those markets want. For example, restaurants are used to buying huge quantities at one time. Imagine a restaurant-oriented package versus a retail package and a retail grocery store. They're very different. So, that's the type of challenges we are having to work through.
If there is such a thing, do you see a silver lining especially for smaller operations who are marketing their beef directly?
I do. You know, this is strictly anecdotal, but a lot of people that I've talked to who direct market beef off the farm or sell through a farmer's market, are telling me they are getting more calls from people interested in buying directly from them. And I do think that may be something that consumers really consider here; buying some product in bulk locally and having a freezer full of beef, and that really applies to all species. Generally speaking, we're composed of mostly small farms in Kentucky that are probably better able to do things like direct market. We've also got a fairly large number of small meat processing plants. And a lot of those do provide a custom service for farmers who want to direct market or for consumers that want to buy directly from the producer. I do think there’s an increase in interest in doing that, which may carry forward.
Do you think we will get to a point of some kind of normalcy and stability in the markets as we move through this pandemic?
Yes, but I do think it will take some time. Even if the supply chain does stabilize, and plant shut downs become less of an issue, I think we're still going to have some pretty serious impacts from reduced economic activity. That's probably going to impact these markets through the balance of 2020, at least. But, direct marketing will help producers in some cases. And the one thing we know for sure is the cattle industry in Kentucky, and nationwide, is very resilient. I'm confident the industry will come through this. We will have huge challenges. But, in the end, I'm certain we're going to have a strong cattle sector.
We have many resources in place in this state that can certainly lend a hand if it's nothing more than advice as we get through this. For what we're dealing with, are we in a good place?
I think you hit the nail on the head. There's a lot of groups that are serving the agriculture industry here, and I think they all do a very good job and bring a lot to the table. One thing I think we can be very proud of in Kentucky, is not just that we have those groups serving agriculture, but all those groups work together extremely well because they have a common goal. That makes us even stronger in this state because we have all those groups working together to serve agriculture in the Commonwealth.