The COVID-19 pandemic threw the brakes on a lot of businesses in 2020. The beef industry was one of the hardest-hit sectors of food and agriculture.
Supply chain members from the cow/calf operation to the grocery counter felt the pressure. Consumers faced sharply higher prices and processors saw operations disrupted. Cattle feeders shifted marketing plans and feed rations to adjust to supply and demand.
Beef industry members continue to take stock of what they've learned. They're weighing future changes and new ways to better prepare for future industry disruptions.
As the #1 farm insurer in the country1, Nationwide employs exceptionally talented and experienced people from agricultural backgrounds. Many of them also work in the cattle business and have experienced first-hand the market volatility and other complications caused by COVID-19. We talked with a few of those associates to get a feel for how they’ve adjusted to the pandemic.
How the beef sector’s been hit by COVID-19
When the pandemic hit, beef processing capacity was slashed by limitations to person-to-person contact among workers. Small producers faced delays in processing and selling direct to consumers. Feeders adjusted rations to account for sudden supply disruptions. Idling ethanol plants, for example, shut off the supply of dry distillers grains and solubles, a common feedstock in the Midwest.
“We make our locker appointments a few months in advance when we have customers lined up. Early in the pandemic we reached out to our hometown locker and secured appointments for two months later than what we had hoped,” according to Nationwide Sr. Consultant Erin Cumings, who has an Angus cow/calf and small feed yard operation in Warren County, Iowa. “Our 2021 processing appointments are also later than we anticipated."
Cattle producers respond to the pandemic
These types of delays caused many producers to make management changes to sustain the value of their herds. In some cases, that means feeding different rations to slow rates of gain to match up with extended processing schedules. In other instances, producers have changed marketing strategies altogether to capture value in different ways.
“I’ve received several calls from people looking for finished cattle to butcher,” said Nationwide Risk Management Consultant and Agronomist Derek Hommer. “Now that I know people are looking for finished cattle to purchase, I plan to keep more of them. They're more profitable for a small cattle producer like myself than selling them as feeders. By feeding them out, I can use more of my own corn and make more money than selling that corn on the open market.”
The long-term viability of that strategy isn’t guaranteed. Feed grain prices will dictate how long adjusting feed rations and extending cattle finishing timeframes will help producers capture value at a time when more normal market dynamics have shifted because of COVID-19.
“Corn is cheap right now. If it was $5/bushel, that would cause double jeopardy for producers holding back cattle longer than normal,” according to Nationwide Risk Management Services Director Doug Becker, who manages a family ranch near Cumberland, Iowa. “Because prices are so low, we can feed for 90 days where we previously would only feed 45 to 60 days. But when feeding that long, you’re just basically breaking even. If corn wasn’t this cheap, it wouldn’t pencil out.”
How the beef industry will continue to evolve
Producers who sell beef directly to consumers will continue to be challenged by extended processing waiting lists. That’s especially true as processors look to ramp up capacity to meet increasing demand from producers and consumers alike.
“The COVID-19 situation has caused me to question the practices I am using. For example, because of COVID, I am working from home. If I knew I would be working from home in the future, I would move my calving window up a month or two so I would have bigger, heavier calves for market,” said Hommer. He normally calves later in the winter because of how he balances his herd with his work with Nationwide.
“I have always been hesitant to calve in February or March. I am not home to check on them for roughly 10 hours a day. As a farmer, I am happy to raise cattle for that consumer to purchase directly. However, I do have to know that the consumer will be there to purchase the cattle I raise," Hommer added. "If the consumer continues to source locally, I have no doubt the processors will expand their own operations. So, it gives me more confidence about the long-term prospects of selling beef directly to consumers.”
Others continue to work toward general growth as a way to future-proof their ranches. Such decisions call for a close eye on local market dynamics and the steps that will yield the most practical benefits to each operation.
“Our local markets have experienced significant volatility, but we luckily didn’t have any cattle ready for the processor when we started becoming inundated with COVID-19 challenges,” Cumings said. “We will continue to focus on saving heifers and slowly growing our herd as the market supports it.”
Added Becker, “We’re just staying attentive to our marketplace here. We maintain a pretty good balancing act with a 120-head cow/calf operation. We’ve talked about cutting it down to 40 head and marketing exclusively through our local locker. We’re facing that quandary: Do we stay at our current size or would we be better off doing more with less? We’ll do what will work best with our labor and what will allow us to control our prices the most. We’re considering models like these more seriously than before the COVID-19 pressures hit.”
If the landscape’s changed for your ranch since the COVID-19 pandemic hit, the Nationwide’s agribusiness team totally understands. Get in touch with your local agent to discuss how we can work together to contribute to a secure future for your operation, and learn more about our farm and ranch risk management products.
1SNL Financial, 2018 (National) Market Share Report.