Why US Cattle Herds Are at 1960s Levels: Industry Expert Explains the Beef Crisis

Vance Crowe [00:00:05] Welcome back to the podcast. I Am, man, it's good to be here. I'm gonna try out a new style of podcasting and I did it with my good buddy Michael Ring, because Michael and I go way back and as I'm trying out this new format, I got to be able to be like, no, no, no. Let's stop. Let's start that again. So you're gonna see us trying to have a conversation that is about the subject of Untying a Knot. And this particular knot we're gonna talk about is the craziness that's going on with the beef cattle herd in the United States. Michael does a good job of explaining why the herd is so low and what all is going on that might might make beef prices go up in the future. Well, I am excited because I am gonna get back out on the road. My daughter is 1-year-old, which means it's easier for mom to take over for a couple of days. So I've started to book some speaking gigs and I've got a big tour coming up in the fall and then in the winter. But to kick it all off, on Saturday, August 26th, I am going to be at Stock Cropper Field Day. You guys might remember me doing an interview with Zach Smith who has come up with that ingenious cluster cluck, which is that Roomba that moves around chickens to be able to lay eggs, but it autonomously moves them so they can keep finding new bugs in a person's lawn. Keep fertilizing it and pecking away at the ground. Jason and Mock is gonna be there. There's gonna be other characters that are all out there.

Vance Crowe [00:01:38] They're calling it the herd of village idiots. This is gonna be in Buffalo Center, Iowa. So if you are anywhere near the northern border of Iowa and or the southern border of Minnesota, you ought consider going. I have been to a field day of some of these crazy guys, and what you'll see out there is stuff that you're like, I didn't know this was going on. And as you all know, Zach is this very interesting blend between Big Ag. He knows how to grow crops, and he's even was the seed salesman for Pioneer for some time and, and he's also like raising animals. And he promised me when I came up there that we'd get to have some fresh chicken slaughtered that day. So I am excited about it. If you're interested, just go check out Stock Cropper Field Day on Eventbrite and check it out. I'm gonna give a talk there about taking chances and about making the decisions in your life to do things that are not always easy. Don't, you don't exactly know the path, but how, you know, at the end of the day, the things that people really value in their lives are the chances that they take. So I'm excited about that. All right, without further ado, let's head to my interview with my man. Michael Ring. Michael Ring, welcome to the podcast.

Michael Ring [00:02:58] Happy to be here.

Vance Crowe [00:03:00] So Michael, you and I have been talking for several months and you've convinced me that there's some big old knot in the beef cattle industry and what is going on with the beef cattle herd in the United States right now?

Michael Ring [00:03:14] Well, we're actually at a really interesting juncture in the cattle cycle that we have gone through several years of drought in the west. And so we are at record low cow numbers. We haven't seen cow numbers this low since the sixties actually. And there's a lot of reasons for that. We were coming up on the age of our producers kept increasing, like I haven't seen numbers this year, but we had an average age of beef producers of 58.3 last time USDA had a survey. And so there's a lot of guys that cashed out during the droughts and that hasn't stopped now with record high feeder cattle prices as well as fat cattle prices. So we're at an interesting juncture because feedlots have, have record high prices and it's kind of a different situation. Usually packers are making more money and right now they are not because they're having to pay so much for fat cattle. So it's just we get, we get maybe two years of this out of eight to 12 in the cattle cycle where, where we have profitability like, like this. And it'll be interesting to see how long it continues.

Vance Crowe [00:04:34] So you are raising cattle in, in a feed yard, right? And you people send you their cattle and you feed 'em out. Are you guys having a good profit margin or the cost of commodities like corn and all the amendments that you have to feed 'em cutting into those margins?

Michael Ring [00:04:53] So we have quite a few luxuries in the cattle feeding business that we are in. My family has a custom feed yard where we, we essentially bring in a bushel of corn, have x markup for our profit margin and shrink and handling, and then we get to sell it out into an investor's calf. So we, we are just the middleman in that. Now my, my cow calf herd of my own is a little bit different than that. Well, very different than that where yet margins are tighter on expensive feed. We aren't, we aren't as high on on corn as we were last summer. We were more expensive last summer. But the problem that we are going to see now with feed yards for the guys that own the cattle is that the feeder cattle are getting so high that even despite record high fat cattle prices, they aren't necessarily profitable. The, the profit right now is in growing calves.

Vance Crowe [00:06:03] So let's break this down. So you talked about feeder cattle and fat cattle and people talk about cow calf operations. Let me see if I understand it and you can correct me. So there are people that specialize in raising cows that are producing babies, and then that those calves go into a feeder system, which is where they then go out onto pasture and then they're eating grass as long as there's not such a big drought that they have to be fed hay and they get to a certain size and then they get sold or brought to a feed yard where they then become fat cattle. Is this correct?

Michael Ring [00:06:40] Yeah, more or less. And they can change hands a few times in between.

Vance Crowe [00:06:44] And so where are the people that are doing well in this right now, making money? Which of those groups are doing well?

Michael Ring [00:06:53] Well, the people that find value are the ones that always do well, but if you have to pick a group, cow calf looks pretty lucrative right now, depending on your area of the country. If you have feed, you have a lot of opportunity right now

Vance Crowe [00:07:14] And feed meaning if you have pastures or you are able to get cheap pay or what does that mean?

Michael Ring [00:07:20] I think the more correct thing I should have said is if you have rain, you're doing well right now. Oh,

Vance Crowe [00:07:27] So I mean, as a person living in the city, I have no concept for who has rain right now. Is it pretty dry out there?

Michael Ring [00:07:34] It's really patchy. Now that's, you put me on the spot here because it's, it's so patchy. We have absolutely record rainfall from my friends. Like out in, in Los Animus in southeast Colorado, there's water sitting everywhere in the desert. But then if you get down actually into it, believe eastern Kansas and most of Missouri is still pretty bad, but there is a lot of, a lot of the country that is wetter now we are in northern Illinois, we als we'll always get some rain, but we are actually in a, in a decent drought right now. Our, our corn is going to be nowhere near last year for yield

Vance Crowe [00:08:19] Yield. And so the, the cattle prices are going for, you said record highs and yet you also mentioned that producer or like the packing houses are not making money. How is that possible?

Michael Ring [00:08:32] So I think there's somewhat of a disconnect there sometimes because you know, people think, okay, well, you know, beef cattle prices are record high, everybody's making money, but there's actually, there's different segments. And the differentiation I think we need to make is there's feeder cattle, which is a weaned calf, say 600 pounds or so, there's a fat cattle market, which is the ones ready to go to market that are 12 to 1500 pounds depending on their frame size. And then there's this entirely separate side of the market once they go to a processor that is the wholesale and re retail markets of the actual physical beef. So what I mean by that profitability is the processors are having to pay record fat cattle prices, but the prices of beef in the store actually isn't that much higher in the last two years. So those guys, if this deal continues and it looks like it will, where we get less and less cows in the country, that ultimately leads to fewer fat cattle around. And then we have a surplus of what we call shackle space, which is, you know, one shackle is where you hang one leg of a calf when it's going through a processor. And if we have a lot of extra shackle space and processor or fighting over cattle, then ultimately you have basically three outcomes.

Michael Ring [00:10:17] And the worst of which we saw last time we were at this point in the cattle cycle, the worst thing that can happen is that a couple major packers close and that will crash the market the way it did in 2015. The other options

Vance Crowe [00:10:33] Now go ahead. And is that because, let me see if I understand. That's because you have packers that are actually going to these auctions and they're buying these cattle, or maybe they're not even going to auction, they're just buying 'em straight off a lot. But they come in and they say, I'm willing to pay this much for it. And if the, if the price goes too high, then you know, some people are just not gonna be able to buy at that price or not be profitable. So then they stop buying and then eventually there become so few cows going through that packing house that they say, all right, it's not even worth it for us to keep this facility open, have all the employees do all the maintenance on the equipment. And then when that happens, then all of the demand that that packing house was bringing, bringing to bear in the market evaporates and then all of a sudden prices start falling because there's less people competing for those same cattle.

Michael Ring [00:11:21] Yes. Yeah, that's correct. That is, that is the most extreme outcome and that is the one that we saw last time in the cattle cycle when we were at this point.

Vance Crowe [00:11:31] So what else could happen here?

Michael Ring [00:11:34] Well, the other options would be that we would see some kind of demand destruction. So if we have a, a recession that could affect beef prices if, if less consumers are buying, which also doesn't help the processor. And then the other one would be that they just, the processors just hemorrhage money until we rebuild the cattle herd. And that one is the most long-term to happen. But I, my guess is somebody would blink before that. And

Vance Crowe [00:12:20] What does blinking look like?

Michael Ring [00:12:23] Major plant closures. And, and to be fair, like they saw this coming, there's actually a plant in Tama, Iowa last summer that had a hole dug, had rock in the hole. I didn't see it myself, but this is what I've been told. We, we sell them cattle and they, they looked at the economic factors coming into this and it was like, wow, we will lose so much money if we put it in this ex expansion that they were looking at. And so they just pushed the hole in.

Vance Crowe [00:12:55] And so at that, at at the very least is, is reflecting something right, that that that expansion that people were trying to make or companies were trying to make that to get bigger so they could have economies of scale have come back and it's just too expensive to keep that going.

Michael Ring [00:13:10] Yeah, for sure.

Vance Crowe [00:13:12] So now you've talked about this thing happening as a cycle, that, that the cattle herd always has a cycle. What is that all about?

Michael Ring [00:13:21] Well, it's, it is basically just the supply and demand curve more or less. It correlates with other things around it that it isn't just like a purely supply and demand market. Like we have all these externalities, like if you have an extreme drought for three years, then that is just going to reduce your cow herd and then you have more demand. So last time we had a really bad drought was 2012, I believe. And so, you know, we had this big draw down and then we had prices go up and up and up through 14 into 15, and then they rolled over once we hit a plant shutter. And then, so the, the cattle cycle is between eight and 12 years and that it just repeats over and over as herd expansion happens and then it contracts because

Vance Crowe [00:14:26] There's so much lag in between the market signals, right. Because if you're gonna have a, a, a fattened cow, right, and you just wanted to start today to get one out and be able to sell it, you if you got it pregnant, the mama pregnant today, you wouldn't even have that fatted calf until 2026, right?

Michael Ring [00:14:45] Yeah, you're right on. Yeah. And that would be if you kept a heifer today from a spring if, if you had a calf born this spring or summer and then you, you grew her for a year until she was ready to breed, you bred her and let her gest state and calved her, that would be nine months. And then you go around again for another year for about 14 months to get that calf fat. And that's, that's, yeah, you're looking at 2026 right now. So

Vance Crowe [00:15:13] If we look out till times like 2026, what do you see on the horizon? How does this not, I mean, you talked about ways that it gets worked out. What are, what are things that are gonna happen in between now and then?

Michael Ring [00:15:26] Oh boy. Well, we're already seeing some pretty good prices on bread cows depending where you're at because that's the, one of the fastest ways to get turnaround is, is start buying bread cows if you're a producer. So there's just gonna be, I don't know, we kinda laid it out already. It's either you just build it up slowly or you know, we have other factors come in that tell us we have less demand and so we'll stay where we're at or only go up a little bit. Right.

Vance Crowe [00:16:11] So what's all this talk about? I hear people like Dwayne Faber talking about how they're breeding dairy cows into the beef herd. What, what, first of all, what is that and is that something that's new and

Michael Ring [00:16:24] What does

Vance Crowe [00:16:24] This mean for this whole cycle?

Michael Ring [00:16:27] Yeah, we, my family actually has been working with programs for that for quite a long time now. And what they're referring to is that dairy cattle, they don't finish as well as quickly as beef cattle do. And so the calves from the cows, if, if you have a steer calf on a dairy cow, they aren't worth that much because they don't gain as well as a beef calf and they have no other purpose. Right? So what dairy started doing was breeding their cows that they knew weren't going to be seed stock, they weren't gonna keep the heifers back out of 'em. They would breed them to a beef bowl and then you'd have a a half beef animal and it would gain better. And so we virtually eliminated whole steams steers in the US in like two years. You just do not see them anymore because you either breed the tap 20% of your cows to sexed heifer semen, or you stick a straw of, of a beef bull in them. And so, and and the same thing with, with jerseys and all the others, Holsteins are typically more continental like an Angus cross and jerseys are, or I'm sorry, Holsteins are British like an, like an Angus and jerseys are continental like a limousine or a gal.

Michael Ring [00:18:02] So we've been, we've been working with dairies on that for a long time and feeding the calves out here. And, and a neat thing that has been happening more recently is that people have been pulling eggs out of beef cows and implanting them in dairy cows and then you get a straight beef calf out. It's not genetically Rene related to the mother.

Vance Crowe [00:18:28] Oh, wow. So, and, and there's something, if you're not in the, in the dairy industry, you might not know that in order for a cow to be able to continue to milk, it's gotta be pregnant and it doesn't need to have that baby and, and love it and be around it all the time, but it does need to get pregnant, have the baby In order to keep producing milk. And so the, that's the reason that you're AIing or artificially inseminating these cattle and instead of just being like, well, let's just keep cranking out, you know, a Holstein with a Holstein, now they're saying, oh, let's, let's have it with these beef cattle and then you can put them in the herd and now you're even saying they're going all the way to straight up IVF where they harvest the eggs from, from, from beef cattle, get them inseminated by a beef bull and then have the Holstein or the jersey, whatever the milker is, have have a a baby that's not it.

Michael Ring [00:19:24] Yeah. And I'll take you one wilder than that. You can pull the reproductive tracks out of cows as they go into a slaughter plant and then extract the eggs out of those and fertilize them and put them in so you have reduced costs.

Vance Crowe [00:19:40] Wow, that is interesting. And is probably the beginning of an amazing dystopian futuristic tale.

Michael Ring [00:19:52] Yeah. So yeah, I mean the other thing about the dairy cross and our existing cow herd numbers is cattle have gotten bigger and these dairy cross calves add more pounds in a, in a shorter amount of time. So by extension of all of our finish weights being higher on beef cattle, we actually need less cattle in the herd.

Vance Crowe [00:20:23] Oh, that's really interesting. So because we've been able to put more weight on each cow or each ca each of the cattle that's going through there, do you have to have less cattle?

Michael Ring [00:20:34] Yeah. Yeah. And, and we've seen that, we topped out on cattle numbers in the seventies and it's funny, if you look in old show pictures, they were like really tall and skinny and they've just gotten bigger and bigger and bigger in that frame over time. So we actually need less cattle around for the same pounds. And like we're probably pretty far down the Asim tote at this point on, on how far we can go on that. Well

Vance Crowe [00:21:04] When you look at this knot, you're in the business, is this, is this something that worries you or like, ah, this is just the way that it is?

Michael Ring [00:21:13] Yeah, I mean there's, I think in terms of answering that, I think there's two levels to it because we look at the cattle industry as national, you know, we're in the US we have our own rules here and it's kind of its own market, and then we have import and export. And so you have the national level of this and then you have like the individual producer, individual sovereignty level of this. And so we kind of have two different, two different things to talk about here. So at the, at the national level, from my perspective, most of what we're going to, what we could change has to do with policy. And that's, whether that's policy around trade, food security, food security is national security or whether that's, you know, labeling, which is an extension of trade currently a lot of the national stuff. Yeah, it, it's around there, there's some questions about fair markets with Packer pricing, but ultimately we're kind of, you're, you're just asking yourself how much you wanna regulate things with the government versus not. And then at the individual level you are, you're making a conscious choice to participate here and you have to decide whether you want to be in a commodity market or not.

Michael Ring [00:22:58] That is raced to the bottom for profitability on, on who can be the lowest cost producer or whether you're going to try and carve out a niche for yourself, do direct to consumer or even whether that's one-on-one with you talking to every person or finding a co-op that has some specific niche. I think there's some room for like a mini Amazon in several regions in terms of fresh food. I, I actually have a friend that's up by the Twin Cities that's into one of those that's kind of like a CSA mixed with Amazon, that there's a third party guy that all he does is run that he's not even a farmer. And that's been going really well. So I think there's a lot of opportunity there. And then, yeah, you can do direct to consumer, you can try and do grass fed, organic, all natural, you know, all that stuff and try and, you know, reward, have the market reward you if you can find a place in it that is not just commodity based, but otherwise there's not a whole lot of getting around the commodity market other than like you can, the guys that do the best in that are the guys that seem to be that, that are really good at hedging, which I enjoy personally with blocking in your, your sell prices and your feed prices at the, at the right times.

Michael Ring [00:24:39] But yeah, I, I think it's a lifestyle and ultimately there will always be people with cattle as long as the government lets us, and probably if they don't because people love it. I mean, it's really in touch with the land and I, I have yet to meet someone that will raise a hog for a loss, but there's people that love it with cattle and doesn't matter what they're making.

Vance Crowe [00:25:04] That's funny. So maybe the last question, if you, if somebody is out there and they love eating beef, but they don't raise it, they don't know that much about it, they're looking and they're hearing what you're saying about the kind of craziness of the, the beef herd, what would you recommend to that person? Should they go out and fill a freezer full of beef? Should they wait and buy at the right time or what? No change at all.

Michael Ring [00:25:32] Well, I don't think anyone would regret finding a high quality producer to buy direct from. Oftentimes we have really competitive rates if you have bulk orders, if you're able to do that. And I, I don't think we're really gonna have a food crisis in this country by any means. So I'm not, I'm not really worried about that. But if you, if you care about where your food comes from, then I'd be happy to, even if you aren't near me, point you towards someone. If I know someone to find a, a high quality aged product,

Vance Crowe [00:26:22] Well man, you know that we buy all of our beef from you, the Ring Brothers beef. If people wanted to get ahold of you, chat with you about cattle, where would they go?

Michael Ring [00:26:32] Well, my twin brother Joseph and I are on Twitter and maybe you can link that in the show notes. But then we also have a website that's ring brothers beef.com.

Vance Crowe [00:26:45] Alright Michael, thank you so much for hopping on here. I appreciate it. And hopefully the knot as it gets untied in beef cattle benefits you on its way out.

Michael Ring [00:26:56] Thank you. It was fun.